Similarity and Geographical Issues in Evaluating the Impact of R&D Spillovers at Firm Level: Evidence from Italy

This paper assesses the impact of R&D spillovers on production, for a balanced panel of 1203 Italian manufacturing firms, over the period 1998-2003. The estimations are based on a translog production function augmented by a measure of R&D spillovers, that combines the geographical distance and technological similarity within each pair of firms. We find three key results. Firstly, we show that the translog production function is more suitable to model firm behavior than the Cobb-Douglas model. Secondly, we argue that the external stock of technology exerts a significant impact on production. This impact is high, whatever way is chosen to weight the innovation flows, and is highly sensitive to the geographical diffusion of technology. Lastly, it emerges that R&D spillovers are Morishima complements to physical and R&D -own capital and Morishima substitute for labor.