Firms’ inventiveness and localized vertical R&D spillovers

It is well known that knowledge spillovers exist and that they generate externalities for firms undertaking R&D. Nevertheless, it still remains difficult to predict which local industrial structure may best favor the diffusion of knowledge externalities and finally innovation. In order to further investigate these issues, this paper studies vertical R&D spillovers in addition to the usual localization and urbanization externalities. The underlying hypothesis is that a firm should benefit from knowledge externalities if it is located in a geographical area close to R&D intensive users and producers identified by input/output relationships. Since urbanization as vertical economies are generated by inter-industry links, the issue is then to investigate if urbanization and user-supplier externalities are of a same nature, and thus substitutes or of a different nature and thus may play a complementary role in the firms? innovation process. JEL Codes: L1, O3, R1, R3