Innovation, Clustering, and Knowledge Spillovers: An Empirical Study of Swedish and Finnish Firms

This paper exams roles of firms ’ characteristics, regional and industrial structures, clustering and knowledge spillovers in explaining firms ’ patenting behavior in Sweden and Finland. This paper takes a first step to incorporate an indicator of firms ’ sorting motives into the empirical investigation on relationships between innovation and agglomeration. Two research issues are assessed. First, firms with high-productivity by sorting into industrial clusters can benefit from agglomeration and thus improve their innovation capabilities. Secondly, conditional on firms ’ sorting motives, knowledge spillovers have positive influences on firms ’ patent productions. To advance upon existing studies in illuminating the distinctive “excess-zero ” patent problem, two Zero-inflated count models are proposed to analyze a panel of 147 Swedish and Finnish firms over the period 2002-2005. Firm size, sorting motive, the intensity of cumulated research and development investment, regional human capital and industrial clustering are main attributes in raising firms ’ innovation output. This study also demonstrates that cross-cluster knowledge spillovers have positive impacts on the intensity of patenting, while the effects of local (within-cluster) knowledge spillovers vary by the industries investigated