Knowledge Flows Among US Metro Areas: Innovative Activity, Proximity, and the Border Effect

Knowledge spillovers are critical for innovation and new value creation in an increasingly knowledge-intensive economy. The substantial scholarly attention on knowledge spillovers has shown that there is a rapid distance decay associated with knowledge spillovers and that there is a positive state border effect. We show that the effects of distance, technology proximity, and the state border effect on knowledge flows are dependent on the size of the regions (MSAs) involved in the knowledge flow. Not accounting for innovation size (innovative communities and social relationships) in the flow of knowledge across origin-destination regions results in aggregation bias in the parameter estimates. Knowledge spillovers are more localized for small innovation MSAs than for large ones. Distance is not as much of a resistance factor in knowledge flow for larger innovation metro areas compared with smaller regions. Spatial origin and destination effects due to technology compatibility of neighboring regions do not affect the knowledge flow among large innovation MSAs, but do have an effect when small MSAs interact with large MSAs.