When interaction matters: the contingent effects of spatial knowledge spillovers and internal R&I on firm productivity

  • Timo MitzeEmail author
  • Teemu Makkonen


This work studies the linkages between spatially bound knowledge spillovers, internal research, and innovation (R&I) activities and firm productivity. Spillovers are modeled to emanate from intra- and extra-sectoral R&I activities in the firms’ regional business environments. We specifically test for non-linearities in the complex relationship between these internal and external knowledge sources and quantify their joint marginal effect on firm productivity. Our empirical results for a large panel of German manufacturing firms (1) underline the overall importance of knowledge spillovers in driving productivity and (2) point at distinct interactions between the included knowledge sources: First, we find that intra-sectoral knowledge spillovers only have a statistically significant effect on firm productivity when extra-sectoral spillovers are sufficiently large. Secondly, the link between knowledge spillovers and productivity varies with the level of the firms’ internal R&I activities.


Firm productivity Research Innovation Spatial knowledge spillovers Interaction terms 

JEL Classification

C23 O10 O30 R11 


Supplementary material

10961_2019_9729_MOESM1_ESM.docx (789 kb)
Supplementary material 1 (DOCX 789 kb)


  1. Aghion, P., Bloom, N., Blundell, R., Griffith, R., & Howitt, P. (2005). Competition and innovation: An inverted-U relationship. The Quarterly Journal of Economics, 120, 701–728. Scholar
  2. Aghion, P., Harris, C., Howitt, P., & Vickers, J. (2001). Competition, imitation and growth with step-by-step innovation. Review of Economic Studies, 68, 467–492. Scholar
  3. Aghion, P., & Jaravel, X. (2015). Knowledge spillovers, innovation and growth. Economic Journal, 125, 533–573. Scholar
  4. Agovino, M., & Rapposelli, A. (2015). Agglomeration externalities and technical efficiency in Italian regions. Quality & Quantity, 49, 1803–1822. Scholar
  5. Añón Higón, D. (2007). The impact of R&D spillovers on UK manufacturing TFP: A dynamic panel approach. Research Policy, 36, 964–979. Scholar
  6. Audretsch, D., Dohse, D., & Niebuhr, A. (2015). Regional unemployment structure and new firm formation. Papers in Regional Science, 94, S115–S138. Scholar
  7. Audretsch, D., & Feldman, M. (2004). Knowledge spillovers and the geography of innovation. In J. Henderson & J. Thisse (Eds.), Handbook of regional and urban economics (pp. 2713–2739). Amsterdam: Elsevier.Google Scholar
  8. Audretsch, D., & Keilbach, M. (2008). Resolving the knowledge paradox: Knowledge-spillover entrepreneurship and economic growth. Research Policy, 37, 1697–1705. Scholar
  9. Audretsch, D., & Lehmann, E. (2004). Mansfield’s missing link: The impact of knowledge spillovers on firm growth. Journal of Technology Transfer, 30, 207–210. Scholar
  10. Autant-Bernard, C., & LeSage, J. (2011). Quantifying knowledge spillovers using spatial econometric tools. Journal of Regional Science, 51, 471–496. Scholar
  11. Barufi, A., Haddad, E., & Nijkamp, P. (2016). Industrial scope of agglomeration economies in Brazil. Annals of Regional Science, 56, 707–755. Scholar
  12. Beaudry, C., & Schiffauerova, A. (2009). Who’s right, Marshall or Jacobs? The localization versus urbanization debate. Research Policy, 38, 318–337. Scholar
  13. Belderbos, R., Carree, M., & Lokshin, B. (2006). Complementary in R&D cooperation strategies. Review of Industrial Organization, 28, 401–426. Scholar
  14. Benz, S., Larch, M., & Zimmer, M. (2015). Trade in ideas: Outsourcing and knowledge spillovers. International Economics and Economic Policy, 12, 221–237. Scholar
  15. Beugelsdijk, S. (2007). The regional environment and a firm’s innovative performance: A plea for a multilevel interactionist approach. Economic Geography, 83, 181–199. Scholar
  16. Boschma, R. (2011). Regional branching and regional innovation policy. In K. Kourtit, P. Nijkamp, & R. Stough (Eds.), Drivers of innovation, entrepreneurship and regional (pp. 359–368). Berlin: Springer.CrossRefGoogle Scholar
  17. Boshuizen, J., Geurts, P., & van der Veen, A. (2009). Regional social networks as conduits for knowledge spillovers: Explaining performance of high-tech firms. Tijdschrift voor Economische en Sociale Geografie, 100, 183–197. Scholar
  18. Brambor, T., Clark, W., & Golder, M. (2006). Understanding interaction models: Improving empirical analyses. Political Analysis, 14, 63–82. Scholar
  19. Buis, M. (2010). Interpretation of interactions in nonlinear models. Stata Journal, 10, 11–29.CrossRefGoogle Scholar
  20. Cainelli, G., Fracasso, A., & Vittucci Marzetti, G. (2015). Spatial agglomeration and productivity in Italy: A panel smooth transition regression approach. Papers in Regional Science, 94, S39–S67. Scholar
  21. Cameron, C., & Trivedi, P. (2005). Microeconometrics: Methods and applications. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  22. Caragliu, A., de Dominicis, L., & de Groot, H. (2016). Both Marshall and Jacobs were right! Economic Geography, 92, 87–111. Scholar
  23. Caragliu, A., & Nijkamp, P. (2016). Space and knowledge spillovers in European regions: The impact of different forms of proximity on spatial knowledge diffusion. Journal of Economic Geography, 16, 749–774. Scholar
  24. Carboni, O., & Medda, G. (2018). R&D, export and investment decision: Evidence from European firms. Applied Economics, 50, 187–201. Scholar
  25. Cheng, W., Morrow, J., & Tacharoen, K. (2012). Productivity as if space mattered: An application to factor markets across China. CEP discussion papers CEPDP1181. London School of Economics and Political Science, London.Google Scholar
  26. Chyi, Y.-L., Lai, Y.-M., & Liu, W.-H. (2012). Knowledge spillovers and firm performance in the high-technology industrial cluster. Research Policy, 41, 556–564. Scholar
  27. Crescenzi, R., & Gagliardi, L. (2018). The innovative performance of firms in heterogeneous environments: The interplay between external knowledge and internal absorptive capacities. Research Policy, 47, 782–795. Scholar
  28. Cunningham, J. A., & O’Reilly, P. J. (2018). Macro, meso and micro perspectives of technology transfer. Journal of Technology Transfer. Scholar
  29. d’Aspremont, C., & Jacquemin, A. (1988). Cooperative and noncooperative R&D in duopoly with spillovers. American Economic Review, 78, 1133–1137.Google Scholar
  30. Daskalopoulou, I., & Liargovas, P. (2010). Regional determinants of manufacturing start-ups in Greece: Evidence on the effect of agglomeration economies. Applied Economics Letters, 17, 1841–1844. Scholar
  31. de Beule, F., & van Beveren, I. (2012). Does firm agglomeration drive product innovation and renewal? An application for Belgium. Tijdschrift voor Economische en Sociale Geografie, 103, 457–472. Scholar
  32. de Groot, H., Poot, J., & Smit, M. (2016). Which agglomeration externalities matter most and why? Journal of Economic Surveys, 30, 756–782. Scholar
  33. Doraszelski, U., & Jaumandreu, J. (2013). R&D and productivity: Estimating endogenous productivity. Review of Economic Studies, 80, 1338–1383. Scholar
  34. Driscoll, J., & Kraay, A. (1998). Consistent covariance matrix estimation with spatially dependent panel data. Review of Economics and Statistics, 80, 545–560. Scholar
  35. Eberhardt, M., & Helmers, C. (2016). Untested assumptions and data slicing: A critical review of firm-level production function estimators. Accessed September 04, 2017.
  36. Eberhardt, M., Helmers, C., & Strauss, H. (2013). Do spillovers matter when estimating private returns to R&D? Review of Economics and Statistics, 95, 436–448. Scholar
  37. Ercole, R., & O’Neill, R. (2017). The influence of agglomeration externalities on manufacturing growth within Indonesian locations. Growth and Change, 48, 91–126. Scholar
  38. European Commission. (2017). Smart specialisation: Strengthening innovation in Europe’s regions. Accessed September 04, 2017.
  39. Eurostat. (2018). High-tech classification of manufacturing industries. Accessed October 15, 2018.
  40. Fafchamps, M., & El Hamine, S. (2017). Firm productivity, wages, and agglomeration externalities. Research in Economics, 71, 291–305. Scholar
  41. Farhauer, O., & Kröll, A. (2012). Diversified specialisation: Going one step beyond regional economics’ specialisation-diversification concept. Review of Regional Research, 32, 63–84. Scholar
  42. Feldman, M. P. (1999). The new economics of innovation, spillovers and agglomeration: A review of empirical studies. Economics of Innovation and New Technology, 8, 5–25. Scholar
  43. Frantzen, D. (2002). Intersectoral and international R&D knowledge spillovers and total factor productivity. Scottish Journal of Political Economy, 49, 280–303. Scholar
  44. Galliano, D., Magrini, M.-B., & Triboulet, P. (2015). Marshall’s versus Jacobs’ externalities in firm innovation performance: The case of French industry. Regional Studies, 49, 1840–1858. Scholar
  45. Glaeser, E., Kallal, H., Scheinkman, J., & Shleifer, A. (1992). Growth in cities. Journal of Political Economy, 100, 1126–1152. Scholar
  46. Gordon, R. (1995). Is there a tradeoff between unemployment and productivity growth? NBER working paper no. 5081. National Bureau of Economic Research, Cambridge, MA.Google Scholar
  47. Grigoriou, K., & Rothaermel, F. (2017). Organizing for knowledge generation: Internal knowledge networks and the contingent effect of external knowledge sourcing. Strategic Management Journal, 38, 395–414. Scholar
  48. Griliches, Z. (1979). Issues in assessing the contribution of research and development to productivity growth. Bell Journal of Economics, 10, 92–116.CrossRefGoogle Scholar
  49. Griliches, Z. (1995). R&D and productivity: Econometric results and measurement issues. In P. Stoneman (Ed.), Handbook of the economics of innovation and technological change (pp. 52–89). Hoboken: Blackwell Publishers.Google Scholar
  50. Groot, S., de Groot, H., & Smit, M. (2014). Regional wage differences in the Netherlands: Micro evidence on agglomeration externalities. Journal of Regional Science, 54, 503–523. Scholar
  51. Hall, B. H., & Mairesse, J. (1995). Exploring the relationship between R&D and productivity in French manufacturing firms. Journal of Econometrics, 65(1), 263–293.CrossRefGoogle Scholar
  52. Hall, B. H., Mairesse, J., & Mohnen, P. (2010). Measuring the returns to R&D. In B. H. Hall & N. Rosenberg (Eds.), Handbook of the economics of innovation (pp. 1033–1082). Amsterdam: Elsevier.CrossRefGoogle Scholar
  53. Halleck Vega, S., & Elhorst, J. P. (2015). The SLX model. Journal of Regional Science, 55, 339–363. Scholar
  54. Henderson, V. (2003). Marshall’s scale economies. Journal of Urban Economics, 53, 1–28. Scholar
  55. Henderson, V., Kuncoro, A., & Turner, M. (1995). Industrial development in cities. Journal of Political Economy, 103, 1067–1090. Scholar
  56. Höchle, D. (2007). Robust standard errors for panel regressions with cross-sectional dependence. Stata Journal, 7, 281–312.CrossRefGoogle Scholar
  57. Hospers, G., Sautet, F., & Desrochers, P. (2008). Silicon somewhere: Is there a need for cluster policy? In C. Karlsson (Ed.), Handbook of research on innovation and clusters: Cases and policies (pp. 430–446). Cheltenham: Edward Elgar.Google Scholar
  58. Illy, A., Schwartz, M., Hornych, C., & Rosenfeld, M. (2011). Local economic structure and sectoral employment growth in German cities. Tijdschrift voor Economische en Sociale Geografie, 102, 582–593. Scholar
  59. Jacobs, J. (1969). The economy of cities. New York: Random House.Google Scholar
  60. Jaffe, A. B. (1998). The importance of “spillovers” in the policy mission of the advanced technology program. Journal of Technology Transfer, 23, 11–19. Scholar
  61. Jaffe, A. B., Trajtenberg, M., & Henderson, R. (1993). Geographic localization of knowledge spillovers as evidenced by patent citations. Quarterly Journal of Economics, 108, 577–598. Scholar
  62. Johansson, B., & Lööf, H. (2008). Innovation activities explained by firm attributes and location. Economics of Innovation and New Technology, 17, 533–552. Scholar
  63. Junankar, P. N. (2013). Is there a trade-off between employment and productivity? IZA discussion paper no. 7717. Institute for the Study of Labor, Bonn.Google Scholar
  64. Kalapouti, K., & Varsakelis, N. (2015). Intra and inter: Regional knowledge spillovers in European Union. Journal of Technology Transfer, 40, 760–781. Scholar
  65. Kalemli-Özcan, S., Sorensen, B., Villegas-Sanchez, C., Volosovych, V., & Yesiltas, S. (2015). How to construct nationally representative firm level data from the ORBIS global database. NBER working paper no. 21558. National Bureau of Economic Research, Cambridge, MA.Google Scholar
  66. Kluge, J., & Lehmann, R. (2013). Marshall or Jacobs? New insights from an interaction model. Review of Regional Research, 33, 107–133. Scholar
  67. Lamina, C., Sturm, G., Kollerits, B., & Kronenberg, F. (2012). Visualizing interaction effects: A proposal for presentation and interpretation. Journal of Clinical Epidemiology, 65, 855–862. Scholar
  68. Lasagni, A. (2011). Agglomeration economies and employment growth: New evidence from the information technology sector in Italy. Growth and Change, 42, 159–178. Scholar
  69. Lee, B., Jang, S., & Hong, S. (2010). Marshall’s scale economies and Jacobs’ externality in Korea: The role of age, size and the legal form of organisation of establishments. Urban Studies, 47, 3131–3156. Scholar
  70. Li, J., Sutherland, D., Ning, L., & Wang, Y. (2014). Firm ownership, industrial structure, and regional innovation performance in China’s provinces. Technology Analysis & Strategic Management, 26, 1001–1022. Scholar
  71. Lokshin, M., Belderbos, B., & Carree, M. (2008). The productivity effects of internal and external R&D: Evidence from a dynamic panel data model. Oxford Bulletin of Economics and Statistics, 70, 399–413. Scholar
  72. Lu, R., Zhang, R., & Reve, T. (2013). Relations among clusters in six Chinese city regions. European Planning Studies, 21, 1189–1209. Scholar
  73. Maraut, S., Dernis, H., Webb, C., Spiezia, V., & Guellec D. (2008). The OECD REGPAT database: A presentation. OECD STI working paper 2008/2. OECD, Paris.Google Scholar
  74. Marrocu, E., Paci, R., & Usai, S. (2013). Productivity growth in the old and new Europe: The role of agglomeration externalities. Journal of Regional Science, 53, 418–442. Scholar
  75. Marshall, A. (1890). Principles of economics. London: Macmillan.Google Scholar
  76. Martin, P., Mayer, T., & Mayneris, F. (2011). Spatial concentration and plant-level productivity in France. Journal of Urban Economics, 69, 182–195. Scholar
  77. Massard, N., & Mehier, C. (2009). Proximity and innovation through an ‘accessibility of knowledge’ lens. Regional Studies, 43, 77–88. Scholar
  78. Mendoza-Velazquez, A. (2017). The effect of industrial competition on employment: A Porter’s approach to the study of industrial clusters in Mexico. Competitiveness Review, 27, 410–432. Scholar
  79. Mikkonen, K. (2002). The competitive advantage of regions and small economic areas: The case of Finland. Fennia, 180, 191–198.Google Scholar
  80. Mitze, T., Naveed, A., & Ahmad, N. (2016). International, intersectoral, or unobservable? Measuring R&D spillovers under weak and strong cross-sectional dependence. Journal of Macroeconomics, 50, 259–272. Scholar
  81. Neffke, F., Henning, M., & Boschma, R. (2012). The impact of aging and technological relatedness on agglomeration externalities: A survival analysis. Journal of Economic Geography, 12, 485–517. Scholar
  82. Neffke, F., Henning, M., Boschma, R., Lundquist, K. J., & Olander, L. O. (2011). The dynamics of agglomeration externalities along the life cycle of industries. Regional Studies, 45, 49–65. Scholar
  83. Niu, Y., Ding, C., & Knaap, G. (2015). Employment centers and agglomeration economies: Foundations of a spatial economic development strategy. Economic Development Quarterly, 29, 14–22. Scholar
  84. O’Donoghue, D., & Gleave, B. (2004). A note on methods for measuring industrial agglomerations. Regional Studies, 38, 419–427. Scholar
  85. Olley, S., & Pakes, A. (1996). The dynamics of productivity in the telecommunications equipment industry. Econometrica, 64, 1263–1297. Scholar
  86. Pessoa, A. (2014). Agglomeration and regional growth policy: Externalities versus comparative advantages. Annals of Regional Science, 53, 1–27. Scholar
  87. Raisch, S., & Birkinshaw, J. (2008). Organizational ambidexterity: Antecedents, outcomes, and moderators. Journal of Management, 34, 375–409. Scholar
  88. Ramadani, V., Abazi-Alili, H., Dana, L., Rexhepi, G., & Ibraimi, S. (2017). The impact of knowledge spillovers and innovation on firm-performance: Findings from the Balkans countries. International Entrepreneurship and Management Journal, 13, 299–325. Scholar
  89. Renski, H. (2011). External economies of localization, urbanization and industrial diversity and new firm survival. Papers in Regional Science, 90, 473–502. Scholar
  90. Roshchina, E. (2016). The impact of labor market conditions on job creation: Evidence from firm level data. In Paper presented at the American economic association annual meeting, Chicago, 6–8 January 2016. Accessed September 23, 2017.
  91. Schmoch, U., LaVille, F., Patel, P., & Frietsch, R. (2003). Linking technology areas to industrial sectors: Final report to the EU commission. Accessed September 23, 2017.
  92. Segerstrom, P. (1998). Endogenous growth without scale effects. American Economic Review, 88, 1290–1310.Google Scholar
  93. Sharma, A. (2017). Dynamic externalities and regional manufacturing growth: Evidence from India. Studies in Business and Economics, 12, 185–201. Scholar
  94. Smit, M. (2017). Cross-border agglomeration benefits. Letters in Spatial and Resource Sciences, 10, 375–383. Scholar
  95. Smit, M., Abreu, M., & de Groot, H. (2015). Micro-evidence on the determinants of innovation in the Netherlands: The relative importance of absorptive capacity and agglomeration externalities. Papers in Regional Science, 94, 249–272. Scholar
  96. Stiebale, J. (2016). Cross-border M&A and innovative activity of acquiring and target firms. Journal of International Economics, 99, 1–15. Scholar
  97. Tavassoli, S., & Jienwatcharamongkhol, V. (2016). Survival of entrepreneurial firms: The role of agglomeration externalities. Entrepreneurship & Regional Development, 28, 746–767. Scholar
  98. Tokunaga, S., Kageyama, M., Akune, Y., & Nakamura, R. (2014). Empirical analysis of agglomeration economies in the Japanese assembly-type manufacturing industry for 1985–2000: Using agglomeration and coagglomeration indices. Review of Urban & Regional Development Studies, 26, 57–79. Scholar
  99. van der Panne, G. (2004). Agglomeration externalities: Marshall versus Jacobs. Journal of Evolutionary Economics, 14, 593–604. Scholar
  100. van der Panne, G., & van Beers, C. (2006). On the Marshall–Jacobs controversy: It takes two to tango. Industrial and Corporate Change, 15, 877–890. Scholar
  101. van Looy, B., Vereyen, C., & Schmoch, U. (2015). Patent statistics: Concordance IPC V8-NACE REV.2. Accessed September 23, 2017.
  102. van Oort, F., Burger, M., Knoben, J., & Raspe, O. (2012). Multilevel approaches and the firm-agglomeration ambiguity in economic growth studies. Journal of Economic Surveys, 26, 468–491. Scholar
  103. Ye, J., Hao, B., & Patel, P. (2016). Orchestrating heterogeneous knowledge: The effects of internal and external knowledge heterogeneity on innovation performance. IEEE Transactions on Engineering Management, 63, 165–176. Scholar
  104. Zhang, H. (2015). How does agglomeration promote the product innovation of Chinese firms? China Economic Review, 35, 105–120. Scholar
  105. Zheng, X. (2010). A cointegration analysis of dynamic externalities. Japan and the World Economy, 22, 130–140. Scholar
  106. Zhu, H., Dai, Z., & Jiang, Z. (2017). Industrial agglomeration externalities, city size, and regional economic development: Empirical research based on dynamic panel data of 283 cities and GMM method. Chinese Geographical Science, 27, 456–470. Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Department of Business and EconomicsUniversity of Southern DenmarkSønderborgDenmark
  2. 2.Karelian Institute, University of Eastern FinlandJoensuuFinland

Personalised recommendations