Absorptive Capacity, Knowledge Flows and Innovation in US Metropolitan Areas

Abstract

High growth and progressive regions possess a culture that promotes innovation. Innovation depends on a region’s ability to use its own existing knowledge and knowledge generated elsewhere. This paper demonstrates the importance of the ability to absorb external knowledge in explaining innovation productivity for US metropolitan areas. Our measure of absorptive capacity, derived from a knowledge flow model, has a positive and significant impact on innovation productivity. We identify local conditions that shape a region’s absorptive capacity. We also contribute to the knowledge flow literature by providing a precise estimate of the geographical area within which knowledge generated in one region positively affects others, and showing that resistance to regional knowledge flows are influenced by the sizes of the regions.