intensively than patents in the rest of the world. Thus, after controlling for the fact that the potential pool of citable electrical and electronics patents in Korea is much smaller than the potential pool in the US, Korean patents cite other Korean patents almost 5 times as intensively as they do US patents. This finding is consistent with earlier findings that there is a significant degree of _geographical localization_ in knowledge spillovers. Thus Jaffe, Trajtenberg and Henderson (1993) found that even within the United States the frequency of citation from a patent in one American state to other patents from the same state is higher than from other states, while Jaffe and Trajtenberg (1998) confirmed that citation frequencies within OECD economies are much higher than the frequency of citation from one OECD economy to another.

**<mark>Exhibit 17</mark>**

<!-- Start of picture text --> Cited<br>Economies<br>Japan<br>Korea<br>Taiwan (China)<br>US<br><!-- End of picture text --> <!-- Start of picture text --> Cited<br>Economies<br>Japan<br>Korea<br>Taiwan (China)<br>US<br><!-- End of picture text --> <!-- Start of picture text --> Korea<br><!-- End of picture text --> <!-- Start of picture text --> Taiwan<br><!-- End of picture text --> <!-- Start of picture text --> 5 E.Asian<br><!-- End of picture text --> <!-- Start of picture text --> Japan<br><!-- End of picture text --> <!-- Start of picture text --> USA<br><!-- End of picture text --> <mark>Source: USPTO and Hu (2006).</mark> The main reason for geographical localization of knowledge spillovers is the _tacitness of knowledge_ . Many types of information, for example the price of a commodity, can be easily codified and cheaply transmitted by electronic means. However complex scientific and technical knowledge often cannot be easily codified and can only be fully communicated if accompanied by face to face interaction. Tacitness and geographical localization help explain the economic usefulness of cities and industrial clusters, which facilitate face to face interactions and knowledge spillovers. At the national level these findings provide more evidence for the value of domestic R&D and innovation efforts,

**Table 7.  Citation Frequencies: Estimated Country-Pair Fixed Effects** *

|||**Cited E**|**conomie**|**s**<br>Taiwan|
|---|---|---|---|---|
||USA|Japan|Korea|(China)|
|**Citing Economies**|||||
|USA|1.00|0.57|0.38|0.29|
|Japan|0.46|0.80|0.44|0.23|
|Korea|0.46|0.70|1.16|0.69|
|Taiwan (China)|0.26|0.25|0.71|0.83|
|China|0.36|0.31|0.44|0.41|
|Hong Kong|0.45|0.41|0.42|0.40|
|Malaysia|0.44|0.32|0.53|0.57|
|Singapore|0.95|0.60|0.93|1.63|
|Thailand|0.66|0.33|0.27|0.10|
|Source: Hu(2006).|* Norma|lized by|“US citin|gUS”=1|

since they suggest that it is easier for local residents to absorb the knowledge spillovers from local innovations than it is from foreign ones. Among other important research results, Jaffe, Trajtenberg and Henderson (1993) found that localization within US states fades away over time, while Audretsch and Feldman (1996) found that geographical clustering is greatest in industries with high R&D intensity and high employment of skilled labor, as well as in industries at an early stage of their life cycle, when more of the knowledge about that industry is still in the heads of skilled workers and less of it has been codified in manuals and protocols.

Exhibit 17 above also provides evidence for the high intensity of intra-East Asian crossborder knowledge flows. The citation frequency from Korea to both Taiwan (China) and Japan 29