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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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