Spillovers in Space: Does Geography Matter?

Using US 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, perhaps dominating other spillover mechanisms, 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.