Public & Private Spillovers, Location and the Productivity of Pharmaceutical Research

Abstract

While there is widespread agreement among economists and management scholars that knowledge spillovers exist and have important economic consequences, researchers know substantially less about the "micro mechanisms" of spillovers-about the degree to which they are geographically localized, for example, or about the degree to which spillovers from public institutions are qualitatively different from those from privately owned firms (Jaffe, 1986; Krugman, 1991; Jaffe et al., 1993; Porter, 1990). In this paper we make use of the geographic distribution of the research activities of major global pharmaceutical firms to explore the extent to which knowledge spills over from proximate private and public institutions. Our data and empirical approach allow us to make advances on two dimensions. First, by focusing on spillovers in research productivity (as opposed to manufacturing productivity), we build closely on the theoretical literature on spillovers that suggests that knowledge externalities are likely to have the most immediate impact on the production of ideas (Romer, 1986; Aghion & Howitt, 1997). Second, our data allow us to distinguish spillovers from public research from spillovers from private, or competitively funded research, and to more deeply explore the role that institutions and geographic proximity play in driving knowledge spillovers.

Understanding the Inputs into Innovation: Do Cities Substitute for Internal Firm Resources?

“…This provides further evidence of the reasoning behind Hypothesis 3b: programmers can be deployed throughout an organization and learning economies and knowledge can be transmitted across IT projects at different establishments 19 . Some prior research using patent citations has also provided evidence of intra‐firm knowledge spillovers in other settings (e.g., Frost, 2001; Furman et al, 2005).…”

“…Geographic location also plays an important role (e.g., Griliches, 1957). Prior work has demonstrated evidence of localization in innovation (Jaffe et al, 1993), suggesting that a propitious location may lower the costs of innovative output (Furman et al, 2005). It is widely assumed that such concerns have motivated firms in information technology (IT) hardware, software, and pharmaceuticals to cluster together (e.g., Saxenian, 1996; Bresnahan and Gambardella, 2004).…”

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“…Local collaborations need to be large not only in scale but also in scope. In this way, the value for future innovation by learning from foreign technology can be less constrained by the limited absorptive capacity of focal firms (Furman, Kyle, Cockburn, and Henderson, ; van Dijk and Bell, ; Zucker, Darby, and Armstrong, ).…”

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“…Numerous studies have shown the significance of spill over effects, notably the diffusion of specialized knowledge among academic and private sector organizations in biomedical clusters, such as those found in Boston or San Diego [3,5]. Spillovers include the exchange of ideas through informal meetings, formal workshops and conferences, and the movement of scientists between companies in a specific geography.…”