Innovation and inter-city knowledge spillovers: Social, geographical, and technological connectedness and psychological openness

Abstract

Knowledge spillovers across economic agents are central to the process of technological innovation. Yet, the mechanisms by which spillovers travel and manifest as innovation are poorly understood. To fill that gap, we study how knowledge spillovers emanating from other cities (knowledge pools) diffuse and get absorbed. We refine the notion of connectedness by comparing three mechanisms through which knowledge spillovers occur between cities (geographically, technologically, and socially via social media links). We also examine how local psychological openness facilitates this diffusion and absorption process. Using 360 U.S. cities as our empirical context, we find geographically mediated and socially mediated (but not technologically mediated) knowledge spillovers to show positive relationships with the rate of patenting. Moreover, results confirm a positive moderation effect of psychological openness on the relationship between socially mediated knowledge spillovers and the rate of patenting. By providing a more comprehensive test of knowledge spillover mechanisms, our study indicates that the often-quoted physical proximity to knowledge pools remains a robust driver. However, a city's virtual connection to knowledge pools (e.g., via social media links between people) also matter, particularly if that city is psychologically more open. This catalyst of local openness might occur because open populations better absorb inflowing knowledge and utilize it more effectively via key innovators. We discuss implications for research and policy with a particular focus on virtual human (vs. geographically bounded) connectedness and psychological openness as intertwined key areas of a new human geography of innovation.