Patent Citations and the Geography of Knowledge Spillovers: A Reassessment

Adam B. Jaffe, Manuel Trajtenberg, and Rebecca Henderson (1993) developed a matching method to study the geography of knowledge spillovers using patent citations, and found that knowledge spillovers are strongly localized. Their method matches each citing patent to a non-citing patent intended to control for the pre-existing geographic concentration of production. We show how the method of selecting the control group may induce spurious evidence of localized spillovers. This paper reassesses their findings using control patents selected under different criteria. Doing so eliminates evidence of strong intra-national localization effects at the state and metropolitan levels, but leaves largely unaffected evidence of international localization effects. A revival of interest in economic geography during the last decade has renewed efforts at measuring location-specific externalities. These efforts have largely been guided by Alfred Marshall’s (1920) three explanations for agglomeration economies: labor market pooling, scale economies in the provision of intermediate goods and services, and localization of knowledge spillovers. Perhaps because, as Paul R. Krugman (1991, p. 53) has argued, “knowledge flows. are invisible; they leave no paper trail by which they may be measured and tracked,” the measurement of knowledge spillovers has proved the most challenging task. The challenge was taken up most prominently by Jaffe et al. (1993, hereafter JTH), who pointed out that knowledge spillovers may well leave a paper trail in the citations to prior art recorded in patents. Moreover, because patents record the residence of the inventors, they are an invaluable resource for studying how knowledge flows are affected by geography. JTH undertook the considerable task of constructing a large dataset of patents and matching the locations of their inventors to the locations of inventors of all patents that subsequently cited them as prior art. Of course, such an exercise would be futile unless one could also control for the existing geographic distribution of production. Patents linked by citation presumably not only share a technology, but are often developed by inventors working in a common industry. Patents linked by citation are therefore much more likely to share a geographic location than are a pair of patents drawn at random from the entire pool, but the observation tells us nothing about knowledge flows. JTH’s important innovation was to construct a control group to mimic the existing geography of production. JTH constructed three patent samples: a set of originating patents, a set of citing patents which referenced one of the originating patents, and a set of control patents matched to each citing patent. Each control patent shared the same technology class and (approximate) application date as its matched citing patent, but did not reference the matched originating patent. JTH’s experiment compared the probabilities that the citing patent, and its matched control patent, were filed by inventors living in the same geographic location as the originating patent. The experiment yielded remarkable evidence that * Thompson: Department of Economics, Florida International University, Miami, FL 33199 (e-mail: peter. thompson2@fiu.edu); Fox-Kean: Department of Economics, University of Houston, Houston, TX, 77204-5882 (e-mail: mefox@mail.uh.edu). We have benefited from insightful comments from three anonymous referees. This research was supported by the National Science Foundation under Grant No. SBR-0296192. 1 Or perhaps this is because Marshall himself seemed less than convinced that knowledge spillovers would be localized: “Many of those economies in the use of specialized skill and machinery which are commonly regarded as within the reach of very large establishments do not depend on the size of individual factories. Some depend on the aggregate volume of production of the kind in the neighborhood; while others again, especially those connected with the growth of knowledge and the progress of the industrial arts, depend chiefly on the aggregate volume of production in the whole civilized world” (Marshall, 1920, Book IV, p. 220).