Innovation and spatial externalities

The purpose of this article is to explain the role that spatial externalities play in the current thinking about innovative activity. Geographic space has evolved from being largely neglected in the study of innovative activity to being an integrating unit of observation for analysis. Geographic space provides the platform not just for the creation of new knowledge but also, as a result of the spillover process, for the commercialization of that knowledge. The spatial paradox inherent in innovative activity is that knowledge spills over from the source producing it to the entity actually commercializing that knowledge, which would seemingly suggest that geographic location is irrelevant for accessing new knowledge. The paradox emerges because knowledge spillovers are localized and tend to decay rapidly with transmission across geographic space. Geographic space provides a unit of analysis integrating the various agents-individuals, networks, and enterprises-involved in the innovative process into a coherent unit. This coherent unit clearly extends beyond the boundaries of individual firms yet is defined by geographic space.