Spatial spillovers and innovation activity in European regions

This paper explores the spatial distribution of innovative activity and the role of technological spillovers in the process of knowledge creation and diffusion across 175 regions of seventeen countries in Europe (the fifteen members of the pre-2004 European Union plus Switzerland and Norway). The analysis is based on a databank set up by CRENoS on regional patenting at the European Patent Office, spanning 1978-2001 and classified by ISIC sectors. The first step is an exploratory spatial data analysis of the dissemination of innovative activity in Europe. The goal of the rest of the paper is to analyse to what extent externalities that cross regional boundaries can explain the spatial association process detected in the distribution of innovative activity in the European regions. The framework given by the knowledge-production function together with the use of spatial econometrics techniques allow us to look for insights on the mechanics of knowledge interdependences across regions, which are shown to exist. Empirical results point to the relevance of internal regional factors (R&D expenditure and agglomeration economies). Moreover, the production of knowledge appears also to be affected by spatial spillovers due to innovative activity (both patenting and R&D) performed in other regions. Additional results show that spillovers are mostly constrained by national borders within less than 250 km, and that technological similarity between regions also matters.