DP1161 Innovative Clusters and the Industry Life Cycle
The purpose of this paper is to link the propensity for innovative activity to cluster spatially to the stage of the industry life cycle. The theory of knowledge spillovers, based on the knowledge production function for innovative activity, suggests that geographic proximity matters most in industries where tacit knowledge plays an important role in the generation of innovative activity. According to the emerging literature on the industry life cycle, tacit knowledge plays the most important role during the early stages of the industry life cycle. Based on a data base that identifies innovative activity for individual states and specific industries in the United States, the empirical evidence suggests that the propensity for innovative activity to concentrate geographically is shaped by the stage of the industry life cycle. The generation of new economic knowledge tends to result in a greater propensity for innovative activity to cluster during the early stages of the industry life cycle, and to be more highly dispersed during the mature and declining stages of the life cycle, particularly after controlling for the extent to which the location of production is geographically concentrated.
