R&D Spillovers and the Geography of Innovation and Production Author(s): David B. Audretsch and Maryann P. Feldman Source: The American Economic Review , Jun., 1996, Vol. 86, No. 3 (Jun., 1996), pp. 630- 640 Published by: American Economic Association Stable URL: https://www.jstor.org/stable/2118216

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This content downloaded from 107.15.27.206 on Thu, 08 Apr 2021 18:59:02 UTC All use subject to https://about.jstor.org/terms R&D Spillovers and the Geography of Innovation and Production

By DAVID B. AUDRETSCH AND MARYANN P. FELDMAN *

More than most other economic activities, as Jaffe et al. (1993) point out, one obvious innovation and technological change depend explanation why innovative activity in some upon new economic knowledge. Thus, Paul industries tends to cluster geographically more Romer (1986), Paul Krugman (1991a, b), than in other industries is that the location of and Gene Grossman and production is more concentrated spatially. (1991), among others, have focused on the Thus, in explaining why the propensity for in- role that spillovers of economic knowledge novative activity to cluster geographically var- across agents and firms play in generating in- ies across industries, we need first to explain, creasing returns and ultimately economic and then to control for, the geographic con- growth. In fact, several recent studies have centration of the location of production. identified the existence of spatially-mediated As Alfred Marshall (1920) and, later knowledge spillovers. An important finding of Krugman (1991b) argue, there may be geo- Adam B. Jaffe (1989), Zoltan Acs et al. graphic boundaries to information flows or (1992, 1994), and Feldman (1994a, b) is that knowledge spillovers, particularly tacit knowl- investment in R&D by private corporations edge, among the firms in an industry. Al- and universities "spills over" for third-party though the cost of transmitting information firms to exploit. If the ability to receive knowl- may be invariant to distance, presumably the edge spillovers is influenced by distance from cost of transmitting knowledge rises with dis- the knowledge source, then geographic con- tance. That is, proximity and location matter. centration should be observed, especially in While there is considerable evidence support- industries where knowledge spillovers are ing the existence of knowledge spillovers, nei- likely to play a more important role. The pur- ther Jaffe (1989), Jaffe et al. (1993), nor Acs pose of this paper is to examine the extent to et al. (1992, 1994), and Feldman (1994a) ac- which industrial activity clusters spatially and tually examine the propensity for innovative to link this geographic concentration to the ex- activity to cluster spatially. But implicit in the istence of knowledge externalities. Of course, knowledge production function model is the assumption that innovative activity should concentrate geographically in those industries where the direct knowledge-generating inputs * Audretsch: Wissenschaftszentrum Berlin ftir Sozial- are the greatest and where knowledge spill- forschung and the Centre for Economic Policy Research, overs are the most prevalent. No one, to date, Reichpietschufer 50, D- 10785 Berlin, Germany; Feldman: has examined the underlying propensity for in- Institute for Policy Studies, Johns Hopkins University, Baltimore, MD 21218. This article was written