The Geography of Knowledge Flows in the U.S. Biopharmaceutical Industry

This study investigates the process of inter-firm knowledge flows and the role of geography in this process. It develops and addresses three questions in the context of the United States (U.S.) biopharmaceutical industry. First, what is the extent of localization of knowledge flows? This question is investigated through an experimental design in which the geographic location of citations (citing patents) is compared with that of originating (cited) patents that they cite, while controlling for the concentration of industrial activity and the progress of technology in the industry. Answering the second question necessitates a more specific estimation approach: What is the role of inventors’ mobility across firms and in space in the geography of knowledge flows? In this model I go one step further than estimating the role of geography and examine how labor (inventor) mobility (as one of three mechanisms of knowledge flows in space) influences knowledge flows. The questions investigated contribute to efforts to ascertain the spatial dimension of such mechanisms. First, the research provides evidence that knowledge flows in biotechnology and pharmaceutical industries are quite significantly localized. Second, the application of social network analysis to patent citations reveals that labor mobility and co-inventorship are responsible for a large portion of these localized knowledge flows. This finding suggests that the main reason we observe knowledge spillovers being confined to regional or state borders is that the mobility of scientists and engineers and the invention networks they build are largely bounded in space. It also calls into question the notion that technical and commercially valuable knowledge randomly disseminates through local encounters or informal social gatherings in high-technology industrial agglomerations, indicating instead that such an explanation is only partially true. Third, the results of the regression models suggest that patent citations (from diverse industries) are indicative not only of technological/scientific quality but also of the economic value of patented inventions. The same empirical results, however, do not support the argument that interregional collaboration results in commercially more valuable inventions though there is some evidence that patents prepared through interregional collaboration have, on average, higher scientific and technological quality.