Knowledge Spillovers and their Impact on Innovation Success

Florian Seliger (ETH Zurich), Spyros Arvanitis & Martin Woerter, “Knowledge Spillovers and their Impact on Innovation Success – A New Approach Using Patent Backward Citations”

We propose a new patent-based measure of knowledge spillovers that calculates technological proximity between firms not just based on a firm sample, but on all firms that can be identified via patent backward citations links. We argue that this measure has a couple of advantages as compared to the “standard” measure proposed by Jaffe: First, it reflects spillovers from both domestic and foreign technologically “relevant” firms, second, it is more precise because it only takes into account knowledge relations with “relevant” firms. Our empirical results indeed show that the measure performs better in an innovation model than the standard measure. We find that knowledge spillovers measured in this way have a positive and significant impact on innovation success. However, the knowledge spillovers appear to be localised as spillovers from geographically distant areas such as the USA and Japan matter, if at all, less than spillovers from near destinations such as Europe and particularly Switzerland itself. Moreover, the spillover effect on innovation performance increases with decreasing number of competitors on the main product market so that this effect would appear only in niche markets or oligopolistic market structures.