Patents, Patent Citations and the Geography of Knowledge Spillovers in Europe

As interest in questions of the knowledge economy has grown, knowledge spillovers have received increased attention in recent years. For the purpose of this paper we use externalities and knowledge spillovers interchangeably to denote the non-pecuniary benefit of knowledge to firms, not responsible for the original investment in the creation of this knowledge. Such spillovers arise when some of the R&D activities have the characteristics of a non-rivalrous good and cannot be appropriated entirely. A fundamental question addressed by empirical research on knowledge spillovers is whether these spillovers are geographically bounded or not (see Karlsson and Manduchi 2001). Most of the studies on this issue thus far have concentrated on the spatial extent of local geographic effects that university research may have on the innovative capacity in a region, both directly and indirectly through its interaction with private sector R&D efforts. The studies vary somewhat in terms of research design, but they all find a strong and positive relationship between innovative activity and both industry R&D and university research at the state level in the USA. But the situation is different in terms of the significance of a local geographic spillover effect. Overall, the evidence is non-existent, weak or mixed, and only pertaining to a few individual sectors (Anselin et al. 1997). This may be due to the fact that knowledge spillovers are measured indirectly rather than directly.