The Geography of Knowledge Spillovers between High-Technology Firms in Europe - Evidence from a Spatial Interaction Modelling Perspective

The focus in this paper is on knowledge spillovers between high-technology firms in Europe, as captured by patent citations. High-technology is defined to include the ISIC-sectors aerospace (ISIC 3845), electronics-telecommunication (ISIC 3832), computers and office equipment (ISIC 3825), and pharmaceuticals (ISIC 3522). The European coverage is given by patent applications at the European Patent Office that are assigned to high-technology firms located in the EU-25 member states, the two accession countries Bulgaria and Romania, and Norway and Switzerland. By following the paper trail left by citations between these high-technology patents we adopt a Poisson spatial interaction modelling perspective to identify and measure spatial separation effects to interregional knowledge spillovers. In doing so we control for technological proximity between the regions, as geographical distance could be just proxying for technological proximity. The study produces prima facie evidence that geography matters. First, geographical distance has a significant impact on knowledge spillovers, and this effect is substantial. Second, national border effects are important and dominate geographical distance effects. Knowledge flows within European countries more easily than across. Not only geography, but also technological proximity matters. Interregional knowledge flows are industry specific and occur most often between regions located close to each other in technological space.