Geographical and cognitive proximity effects on innovation performance: Which types of proximity for which types of innovation?

Abstract The purpose of the paper is to explore the multi‐dimensional and intersecting nature of proximity to drive innovation performance. Applying a multi‐dimensional proximity framework, the study provides a deeper understanding of the importance of substitution and overlap mechanisms in the relation between geographical and cognitive proximity dimensions in innovation performance. The paper further analyses the moderation effect of organisational innovation in this relationship. Multivariate analysis proves the interaction effects between geographical and cognitive proximity, where cognitive proximity both substitutes and complements geographical proximity. However, external knowledge search for innovation along proximity dimensions differs depending on the type of innovation. Our findings corroborate the proximity paradox caused by lock‐in effects with the optimal level of proximity influenced by the interdependencies between proximity dimensions. This inverse U‐shaped relationship is flatter for firms that have adopted organisational innovation. External knowledge linkages should be tailored to the favourable characteristic of proximity to enhance firm innovation performance.