A relevant issue in the knowledge externalities literature is whether firms located in agglomerations mainly learn from other local firms in the same industry or from other local firms in a range of other industries (Glaeser et al, 1992). A second form of externalities relates to Jane Jacobs’ contributions on cities, externalities and innovation (Jacobs 1969). From her work we learn that a diversified economy would bring benefits to local firms because it would generate new ideas steaming from the cross-fertilization of ideas across different industries. In a regional context, this would be in line with the idea that regions with a more diverse stock of knowledge would have a greater potential for innovation and growth. However, since the paper by Frenken et al (2007), several authors have argued that the concept of diversification claimed by Jacobs need to be more deeply specified, by separating between diversification of related industries and diversification of unrelated industries – or, using the correct jargon, related versus unrelated variety. Regions hosting related industries, with different but connected knowledge bases, can more easily engage in recombinant innovation. On the contrary, the combination of previously unrelated industries or technologies is more difficult to succeed.
We study in depth the relationships between the local knowledge economy and the knowledge that flows from other regions in generating new knowledge. In particular, we assess whether the more similar the internal and external knowledge sectors, the larger the innovation outputs, or else, different but related internal and external sectors are more prone to innovation creation. We use a sample of 274 NUTS2 European regions of 27 countries from 1999 to 2007.
We obtain that similarity between the technological composition of the knowledge of the within-the-region patents and that of the cross-regional co-patents has a highly significant impact on the regions’ innovative output. In other words, if the knowledge that enters a region thanks to collaboration agreements with inventors in other regions is from sectors in which it already patents, there is plenty of room for absorbing new knowledge, with the subsequent significant impact on innovation output.
On the contrary, if only a certain degree of relatedness between the technological sectors of the patents in the region and the technological sectors of the knowledge flows that come from co-patenting with inventors in other regions exists, the interconnection does not seem to produce any significant innovation outcome but a higher similarity is needed. However, when the patents are weighted by their quality, the positive and significant parameter of the relatedness index suggests that the connections made with inventors outside the region have a relevant impact on its innovation output as far as the co-patenting profile (the knowledge that enters the region from the external world) and the knowledge stock of the region are related to a certain extent, but are not very similar. This is probably the case because the possibilities to learn different competences are wider in such a case and seem to be needed to generate more radical innovations. We can conclude, therefore, that in order to develop the exchange between inventors belonging to different technological sectors, it is necessary to have a certain level of similarity so as to have the opportunity to learn from each other, but this is not so much the case for breakthrough innovations, where just some relatedness between the knowledge inside and outside is necessary.
Glaeser, E.L., Kallal, H.D., Scheinkman, J.A. and Shleifer, A. (1992) Growth in Cities, Journal of Political Economy 100(6): 1126-1152.
Frenken, K., F. van Oort and T. Verburg (2007) Related Variety, Unrelated Variety and Regional Economic Growth, Regional Studies, 41(5), 685–697.
Jacobs J (1969) The economy of cities. Random House, NewYork.