Proximity and Knowledge Spillovers: Evidence from the Introduction of New Airline Routes

Abstract

This paper studies the causal relationship between proximity and knowledge diffusion by exploiting sudden changes in travel time following the introduction of new flight routes. We find that decreasing travel time between U.S. cities by 20% increases knowledge flow by 0.5%, which corresponds to an increase of over 15,000 citations at the aggregate level. Importantly, this effect is driven mainly by the rise in knowledge spillovers across firm boundaries instead of through inventors’ mobility or firms’ spatial expansion. The effects are stronger in rapidly-evolving technological fields and city pairs with higher absorptive capacity, but are smaller during the age of the Internet, as alternative means of information transfer start to emerge.