NBER WORKING PAPERS SERIES
GEOGRAPHIC LOCALIZATION OF KNOWLEDGE SPILLOVERS
AS EVIDENCED BY PATENT CITATIONS
Adam B. Jaffe
Manuel Trajtenberg
Rebecca Henderson
Working Paper No. 3993
NATIONAL BUREAU OF ECONOMIC RESEARCH
1050 Massachusetts Avenue
Cambridge, MA 02138
February 1992
We gratefully acknowledge support from the Ameritech Foundation, via the Ameritech
Fellows program of the Center for Regional Economic Issues at Case-Western Reserve
University, and from the National Science Foundation through grant SES91-10516. We thank
Neil Bania, Mike Fogarty, Zvi Griliches, Frank Lichtenberg, Francis Narin and seminar
participants at NBER and Case-Western University for helpful comments. This paper is part
of NBER's research program in Productivity. Any opinions expressed are those of the
authors and not those of the National Bureau of Economic Reseaih.
NBER Working Paper #3993
February 1992
GEOGRAPHIC LOCALIZATION OF KNOWLEDGE SPILLOVERS
AS EVIDENCED BY PATENT CITATIONS
ABSTRACT
We compare the geographic location of patent citations to those of the cited patents, as
evidence of the extent to which knowledge spillovers are geographically localized. We find
that citations to U.S. patents are more likely to come from the U.S., and more likely to come
from the same state and SMSA as the cited patents than one would expect based only on the
preexisting concentration of related research activity. These effects are particularly significant
at the local (SMSA) level, and are particularly apparent in early citations.
Adam B. Jaffe
Manuel Trajtenberg
Department of Economics
Tel Aviv University
Harvard University
Ramat Aviv
Cambridge, MA 02138
Tel Aviv 69978
and NBER
ISRAEL
and NBER
Rebecca Henderson
Sloan School of Management
Massachusetts Institute of Technology
Cambridge, MA 02139
and NBER
GEOGRAPHIC LOCALIZATION OF KNOWLEDGE SPILLOVERS
AS EVIDENCED BY PATENT CITATIONS
by Adam B. Jaffe, Manuel Trajtenberg and Rebecca Henderson
The last decade has seen the development of a significant body of empirical
research on R&D spillovers.' Generally speaking, this research has shown that the
productivity of firms or industries is dependent not only on their R&D spending, but also
on the R&D spending of other firms or other industries. In parallel, economic growth
theorists have focussed new attention on the role of knowledge capital in aggregate
economic growth, with a prominent modelling role for knowledge spillovers (e.g., Romer,
1986 and 1990; Grossman and Helpman, 1991).
We know very little, however, about where spillovers go. Is there any advantage
to nearby firms, or even firms in the same country, or do spillovers waft into the ether,
available for anyone around the globe to grab? The presumption that U.S. international
competitiveness is affected by what goes on at Federal Labs and U.S. universities, and
the belief that universities and other research centers can stimulate regional economic
growth2 are predicated on the existence of a geographic component to the spillover
mechanism. The existing spillover literature is, however, virtually silent on this point.3
1. E.g., Jaffe (1986), and Nadiri and Bernstein (1988 and 1989). For a recent survey
and evaluation of this literature, see Griliches (1991).
2. See, e.g., Minnesota Department of Trade and Economic Development (1988);
Feller (1989); and Smilor, et a! (1989).
3. Jaffe (1989) provides evidence that corporate patenting at the state level depends on
university research spending, after controlling for corporate R&D. Mansfield (1991)
surveyed industrial R&D about university research from which they benefitted. He
2
In the growth literature, it is typically assumed that knowledge spills over to other
agents within the country, but not to other
countries.4 This implicit assumption clearly
begs the fundamental question of whether and to what extent knowledge externalities
are localized. As emphasized recently by Krugman (1991), acknowledging the
importance of spillovers and increasing returns requires renewed attention by economists
to issues of economic geography. Krugman revives and explores the explanations given
by Marshall (1920) as to why industries are concentrated in cities. Marshall identified
three factors favoring geographic concentration of industries:
(1) the pooling of
demands for specialized labor; (2) the development of specialized intermediate goods
industries; and (3) knowledge spillovers among the firms in an industry. Krugman
believes that economists should focus on the first two of these, partially because he
perceives that '[k}nowledge flows, by contrast, are invisible; they leave no paper trail by
which they may be measured and tracked, and there is nothing to prevent the theorist
from assuming anything about them that she likes." (Krugman, p. 53)
Glaeser,
et a! (1991) characterize the "Marshall-Arrow-Romer" models as
focussing on knowledge spillovers within the firms in a given industry. They examine the
growth rate of industries in cities as a function of the concentration of industrial activity
across cities, within-city industrial diversity, and within-city competition. They find that
found that they most often identified major research universities, but that there was
some tendency to cite local universities even if they were not the best in their field.
4. The existence of this implicit assumption was noted by Glaeser, et al (1991): "After
all, intellectual breakthroughs must cross hallways and streets more easily than oceans
and continents." Grossman and Helpman (1991) consider international knowledge
spillovers explicitly.
3
within-city diversity is positively associated with growth of industries in that city, while
concentration of an industry within a city does not foster its growth. They interpret this
contrast to mean that spillovers across industries are more important than spillovers
within industries. As is discussed below, there is evidence from the R&D spillover
literature to suggest that across-industry knowledge spillovers are, indeed, important.
In this study, we do not consider the industrial identity of either generators or receivers
of spillovers, though we do have some information on their technological similarity.
Our approach is to seek evidence of spillover-localization in patent citation
patterns. Taking a citation from a later patent as evidence of a subsequent technological
development that builds upon the result of the cited patent, it provides some evidence
of the "paper trail" left by the "invisible" knowledge flow. Because patents contain
detailed geographic information about their inventors, we can examine where these trails
actually lead. We perform this examination for the citations of patents assigned to
universities, and also for the citations of a sample of domestic corporate patents. If
knowledge spillovers are localized within countries, then citations of patents generated
within the U.S. should come disproportionately from within the U.S. To the extent that
regional localization of spillovers is important, citations should come disproportionately
from the same state or metropolitan area as the originating patent.
The most difficult problem confronted by the effort to test for spillover-
localization is the difficulty of separating spillovers from correlations that may be due
to a pre-existing pattern of geographic concentration of technologically related activities.
That is, if a large fraction of citations to Stanford patents come from Silicon valley, we
