The Geographic Concentration of Knowledge: Scale, Agglomeration, and Congestion in Innovation Across U.S. States

Abstract

Evidence of the importance of agglomeration economies in productivity is reported by a number of studies in regional economics. We extend the literature by looking into agglomeration and congestion in innovation and technological change using an endogenous innovation approach. It turns out that the geographic specificity of knowledge spillovers is also a central concern. Using data from U.S. states, evidence is found that knowledge spillovers are geographically concentrated but agglomeration economies far outweigh congestion effects. These results have important implications for new growth theory as well as regional economics because growth theorists have abandoned the scale implications of their models.