Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

Abstract: This paper studies firms' capability to recombine internal and local knowledge. It measures the outcome in terms of total productivity growth.Using Swedish data on commuting time for face-to-face contacts across all 290 municipalities, we employ a time sensitive approach for calculating localized knowledge within a municipality and and its close neighbors. Internal knowledge is captured by register data on firms' innovation intensity. The two sources of knowledge are modeled in a production function setting by discrete composite variables with different combinations of input factors. Applying the model on Swedish firm level panel data, we find strong evidence of differences in the capacity to benefit from external knowledge among persistent innovators, temporary innovators and non-innovators. The results are consistent regardless of whether innovation efforts are measured in terms of the frequency of patent applications or the level of R&D investment.

Keywords: Innovation strategies; localized knowledge; patents; TFP growth; panel data

JEL-codes: C23; O31; O32

33 pages, First version: December 12, 2017. Revised: April 16, 2018.

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