If regions could choose their neighbours: a panel data analysis of knowledge spillovers between European regions

This paper aims at investigating interregional knowledge spillovers. After a review of the related literature, we construct a regional knowledge production function that allows for extra regional innovation-generating inputs. Accounting for regional specific "social capability," this knowledge production function is applied to an extended sample of 153 European NUTS I and NUTS II regions over the period 1989-1996. Interregional knowledge spillovers are shown 10 exist but turn Out to be relatively weak. A technology gap approach provides evidence that not only the "home" technology gap but also the "neighbourhood" one significantly influence "home patenting activity." It also confirms that interregional knowledge spillovers are rather limited. These findings lead us to conclude that there is little place for technological free riding among regions. Therefore regional development strategies aiming at upgrading technological capability should basically focus on the simultaneous strengthening of the region's human, physical and knowledge capacities.