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Industry Localization, Distance Decay, and Knowledge Spillovers: Following the Patent Paper Trail

  • Octávio Figueiredo

    ()

    (Universidade do Porto)

  • Paulo Guimarães

    ()

    (American University of Sharjah)

  • Douglas Woodward

    ()

    (University of South Carolina)

This paper investigates the hypothesis that knowledge spillovers increase where industries are localized. At the same time, we take a fresh look at the role of distance in knowledge diffusion. Our unique database combines U.S. county-level patent citation data with county-level establishment and employment data. Relying on a cited-citing gravity equation with high-dimensional fixed effects that control for multiple sources of observed and non-observed heterogeneity, we implement a Poisson pseudo-maximum-likelihood estimator. Our results confirm the negative role of distance uncovered in Jaffe, Trajtenberg & Henderson's (1993) pioneering work. We also find that knowledge spillovers correlate positively with industry localization and that the agglomeration of an industry can offset the effect of distance. Our approach to estimate the Poisson regression with two high-dimensional fixed effects may prove equally useful in applications to a variety of other problems in economics.

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Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 521.

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Length: 31 pages
Date of creation: Jan 2014
Date of revision:
Handle: RePEc:por:fepwps:521
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  2. Joao Santos Silva & Silvana Tenreyro, 2009. "Further simulation evidence on the performance of the Poisson pseudo-maximum likelihood estimator," LSE Research Online Documents on Economics 25506, London School of Economics and Political Science, LSE Library.
  3. Bronwyn H. Hall & Adam B. Jaffe & Manuel Trajtenberg, 2001. "The NBER Patent Citation Data File: Lessons, Insights and Methodological Tools," NBER Working Papers 8498, National Bureau of Economic Research, Inc.
  4. Agrawal, Ajay & Kapur, Devesh & McHale, John, 2008. "How do spatial and social proximity influence knowledge flows? Evidence from patent data," Journal of Urban Economics, Elsevier, vol. 64(2), pages 258-269, September.
  5. Peter Thompson & Melanie Fox-Kean, 2005. "Patent Citations and the Geography of Knowledge Spillovers: A Reassessment," American Economic Review, American Economic Association, vol. 95(1), pages 450-460, March.
  6. Ivan Fernandez-Val & Martin Weidner, 2013. "Individual and time effects in nonlinear panel models with large N, T," CeMMAP working papers CWP60/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  7. Adam B. Jaffe & Manuel Trajtenberg, 1996. "Flows of Knowledge from Universities and Federal Labs: Modeling the Flowof Patent Citations Over Time and Across Institutional and Geographic Boundari," NBER Working Papers 5712, National Bureau of Economic Research, Inc.
  8. Gilles Duranton & Henry G. Overman, 2005. "Testing for Localization Using Micro-Geographic Data," Review of Economic Studies, Oxford University Press, vol. 72(4), pages 1077-1106.
  9. Rosenthal, Stuart S. & Strange, William C., 2004. "Evidence on the nature and sources of agglomeration economies," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 49, pages 2119-2171 Elsevier.
  10. Joao Santos Silva & Silvana Tenreyro, 2005. "The log of gravity," LSE Research Online Documents on Economics 3744, London School of Economics and Political Science, LSE Library.
  11. Ricardo J. Caballero & Adam B. Jaffe, 1993. "How High are the Giants' Shoulders: An Empirical Assessment of Knowledge Spillovers and Creative Destruction in a Model of Economic Growth," NBER Working Papers 4370, National Bureau of Economic Research, Inc.
  12. Jaffe, A.B. & Trajtenberg, M., 1992. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," Papers 14-92, Tel Aviv.
  13. Yasusada Murata & Ryo Nakajima & Ryosuke Okamoto & Ryuichi Tamura, 2011. "Localized knowledge spillovers and patent citations: A distance-based approach," KIER Working Papers 763, Kyoto University, Institute of Economic Research.
  14. Peter Thompson, 2006. "Patent Citations and the Geography of Knowledge Spillovers: Evidence from Inventor- and Examiner-added Citations," The Review of Economics and Statistics, MIT Press, vol. 88(2), pages 383-388, May.
  15. Gourieroux Christian & Monfort Alain & Trognon A, 1982. "Pseudo maximum lilelihood methods : applications to poisson models," CEPREMAP Working Papers (Couverture Orange) 8203, CEPREMAP.
  16. Diego Puga, 2009. "The magnitude and causes of agglomeration economies," Working Papers 2009-09, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
  17. Adam Jaffe & Manuel Trajtenberg, 1999. "International Knowledge Flows: Evidence From Patent Citations," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 8(1-2), pages 105-136.
  18. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  19. Rebecca Henderson & Adam Jaffe & Manuel Trajtenberg, 2005. "Patent Citations and the Geography of Knowledge Spillovers: A Reassessment: Comment," American Economic Review, American Economic Association, vol. 95(1), pages 461-464, March.
  20. Thomas J. Holmes & John J. Stevens, 2002. "Geographic Concentration and Establishment Scale," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 682-690, November.
  21. Peter Thompson & Melanie Fox-Kean, 2005. "Patent Citations and the Geography of Knowledge Spillovers: A Reassessment: Reply," American Economic Review, American Economic Association, vol. 95(1), pages 465-466, March.
  22. Stefano Breschi & Francesco Lissoni, 2009. "Mobility of skilled workers and co-invention networks: an anatomy of localized knowledge flows," Journal of Economic Geography, Oxford University Press, vol. 9(4), pages 439-468, July.
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