Knowledge spillovers are crucial for knowledge creation, which is a major driver of the economic growth. Geographical proximity enhances knowledge spillovers and idea exchanges, which causes urban agglomeration. Japan and many European countries have been implementing an industrial cluster policy in an attempt to induce innovation through the closer geographical proximity of businesses. In the February issue of the RIETI Report, we present the column "Localisation in knowledge-creating activities: Evidence from Japanese patent data" jointly written by Osaka Sangyo University Associate Professor Hiroyasu Inoue, Tohoku University Associate Professor Kentaro Nakajima, and RIETI Senior Fellow Yukiko Umeno Saito and published on the VoxEU website.
Despite a vast development in information and communications technology (ICT) between 1985 and 2005, the tendency of geographic clustering in Japan hardly changed during this period, implying that geographic distance significantly impedes collaboration and has not been overcome even with the development of ICT. The authors look at establishment-level dataset in Japan and find that although research establishments are localized in several regions, such as Tokyo, Osaka, and Nagoya, they are broadly distributed over Japan, and also discover that research establishments are more concentrated in narrower regions. They then look at the distribution of patent creation, which also is found to be more localized, as well as confirming that both knowledge-demanding establishments and creative establishments are more localized. The authors conclude that knowledge-demanding establishments tend to be clustered, and that geographic distance is more crucial for creative establishments, suggesting that geographically localized knowledge spillovers between establishments are still crucial for innovation.
Knowledge spillovers are a crucial ingredient for knowledge creation, which is one of the major drivers of the growth of modern economies. Since Marshall (1890), it has been well recognised that geographical proximity enhances knowledge spillovers and idea exchanges, which causes urban agglomeration (e.g. Davis and Dingel 2012). Japan and many European countries have been implementing an industrial cluster policy, a set of measures to promote the formation of industrial clusters, in an attempt to induce innovation through the closer geographical proximity of businesses.
It has been pointed out that collaborations enhance the knowledge spillovers between organisations with different knowledge stocks, which facilitates great innovations (e.g. Berliant and Fujita 2008). In Inoue et al. (2013), we analysed establishment-level collaboration relationships in patent inventions in Japan, and found that collaboration relationships are significantly localised. Furthermore, this tendency of geographic clustering hardly changed between 1985 and 2005 despite the vast development of information and communications technology (ICT) during this period. These imply that geographic distance significantly impedes collaboration and has not been overcome even with the development of ICT.