Spillovers in Space: Does Geography Matter?

Using U.S. firm level panel data we simultaneously assess the contributions to productivity of three potential sources of research and development spillovers: geographic, technological, and product market (horizontal). To do so, we construct new measures of geographic proximity based on the distribution of a firm's inventor locations as well as its headquarters. We find that geographic location is important for productivity, as are technology (but not product) spillovers, and that both intra and inter-regional (counties) spillovers matter. The geographic location of a firm's researchers is more important than its headquarters. These benefits may be the reason why local policy makers compete so hard for the location of local R&D labs and high tech workers.