'A Far Friend is Worth More than a Good Neighbour': Proximity and Innovation in a Small Country

Abstract

This paper is about the relationship betweeninnovation and geography. Much of theliterature on regional economics and innovationsuggests that knowledge spillovers are boundedby distance. But distance is a relative conceptand how local is local? Based on a uniquedataset of 1510 Dutch firms we examine whetherinnovative activity (R&D expenditures) haslarger spillover effects on the development ofnew products for firms nearby versus those faraway. We also consider the impact of proximityto research oriented institutes. We do not findthat proximity promotes industrial knowledgespillovers between firms within theNetherlands. We do find indications thatdistance limits spillovers from universities oftechnology. Our analysis suggests that a farfriend may be worth more than a goodneighbour.