Measuring R&D Spillovers: On the Importance of Geographic and Technological Proximity

By Michael J. Orlando
July 2000; Last Revised September 2002
RWP 02-06
Research Division 
Federal Reserve Bank of Kansas City 

Abstract

       Evidence is presented which suggest that an important measure of the apparent geographic localization of R&D spillovers may be an artifact of industrial agglomeration. A production function framework is used to examine the role of geographic and technological proximity for inter-firm spillovers from R&D. The largest spillovers are found to flow between firms in the same industry. However, spillovers within narrowly defined technological groups do not appear to be attenuated by distance. Geographic proximity does appear to attenuate spillovers that cross narrowly defined technological boundaries, suggesting these spillovers may play a role in the agglomeration of a diversity of industrial activity.

Keywords: R&D, spillovers, industrial agglomeration, geography, empirical studies

JEL Codes: O3, R1, L6

Michael Orlando is an economist at the Federal Reserve Bank of Kansas City. Omissions or errors are his responsibility alone and persist in spite of the invaluable guidance and comments provided by Bruce Petersen, Marcus Berliant, Steven Fazzari, Josh Lerner, Douglass North, Robert Parks, the participants of the NBER Summer Institute - Productivity, Science, and R&D, and two anonymous referees. The views expressed in this paper are those of the author and do not necessarily reflect the views of the Federal Reserve Bank of Kansas City or the Federal Reserve System.

Orlando e-mail:  michael.j.orlando@kc.frb.org