ABSORPTIVE CAPACITY, KNOWLEDGE FLOWS, AND INNOVATION IN U.S. METROPOLITAN AREAS

ABSTRACT High growth and progressive regions possess a culture that promotes innovation. Innovation depends on a region's ability to use its own existing knowledge and knowledge generated elsewhere. This paper demonstrates the importance of the ability to absorb external knowledge in explaining innovation productivity for 106 U.S. metropolitan areas. Using a spatial interaction model of patent citation flows with origin and destination dependence, the destination fixed‐effects coefficients provides a measure of a region's absorptive capacity. We identify local conditions that shape a region's absorptive capacity and demonstrate it has a positive and significant impact on innovation productivity.