Regional clusters of innovative activity in Europe : are social capital and geographical proximity the key determinants?

Finding proper policy instruments to promote productivity growth features prominently on the Lisbon agenda and is central in many national as well as European policy debates. In view of the increased mobility of high-skilled workers in Europe, ongoing globalization and increased interregional and international co-operation, location patterns of innovative activity may be subject to drastic changes. A proper understanding of location patterns of innovative outputs can enhance the effectiveness and efficiency of national and European innovation policies. Building on the literature on the knowledge production function the aim of this paper is to explain the observed differences in the production of innovative output across European regions. Our main research question is whether geographical proximity and social capital are important vehicles of knowledge transmission for the production of innovative output in Europe. Several other variables are used to control for structural differences across European regions. We find support for the hypothesis that both social capital and geographical proximity are important factors in explaining the differences in the production of innovative output across European regions.