Innovation, Knowledge Spillovers and Local Labour Markets

Research and development cooperation relationsrequire face-to-face contact and are the most geographically localized ofinter-firm relations. This study examines the importance of face-to-facecontacts and labor market mobility in fostering innovation. Specifically,it examines the role and importance that various local knowledge transfermechanisms of face-to-face interaction between firms, and between firms andother organizations, and between firms and mobile labor actually play indetermining localized patterns of innovation and growth. A variety of statistical data about high-technology firms in Finland wasutilized, especially innovation surveys conducted by Statistics Finland in1996, 2000, and 2002, to determine whether face-to-face interactions betweenfirms, and between firms and other organizations, were related to innovationperformance. Information from R&D Surveys and the Business Register for1990-2002 were also used. Also considered was whether the variety of other firms or individualsinteracted with is related to the innovation performance of a firm, and theextent to which the localization of a firm's labor force affects innovationperformance. Results provide strong evidence that innovation is positivelyrelated to a firm's having intense face-to-face relations with other firms andorganizations to facilitate knowledge spillovers and exchanges. There is very limited evidence that such relations play any systematic andsignificant role in promoting innovation. Results suggest innovation is relatedto the spatial extent of the firm's labor market, and not to the extent that itis spatially concentrated.These findings broadly question the importanceof urbanization economies in knowledge diffusion in Finland. (TNM)