Where does it matter? Revisiting the role of proximity in knowledge spillovers

Abstract

This paper seeks to reconcile the divergent views on the role of proximity in knowledge spillovers through a comparative analysis of proximity's various dimensions and an examination of conditions under which proximity is effective. Our findings indicate that cognitive and social proximity not only mitigate the hindrance of geographical distance on knowledge diffusion but also play a dominant role in facilitating knowledge flows over long distances. Consequently, non-geographical proximity has a more profound impact on knowledge spillovers, although the effect of geographical proximity remains significant and should not be overlooked. Through mechanistic analysis, we find that geographical proximity is effective in facilitating the diffusion of tacit knowledge, learning by firms with poorer knowledge stock, and searching for unfixed knowledge sources. The impact of geographical proximity on knowledge spillovers depends on a range of conditions, and appreciating this complexity is vital for an accurate comprehension of its role. In contrast, non-geographical proximity exhibits greater robustness, as it faces fewer limiting conditions and possesses stronger explanatory power.