Cheaper travel is one reason local knowledge spillovers are declining
Why is the strength of local knowledge spillovers falling? One reason is as it gets easier to travel, it becomes less important to live near people with complementary knowledge. Evidence on this is pretty consistent across planes, trains, subways, and automobiles.
Let’s start with planes. Catalini, Fons-Rosen, and Gaule (2020) look at academic collaboration between chemists living in different cities after Southwest Airlines opens a new route connecting them. They find in the years after new (low-cost) airline routes connect them, chemists publish 50% more articles co-authored with chemists on the other end of the route.
The effect is stronger for collaborations across different fields and when both chemists are more productive than the average for their department - both cases when being able to reach outside your local contacts is important. Similar effects exist for other disciplines.
(While 50% is a pretty big effect, bear in mind the baseline is really small - the probability a given pair of chemists will collaborate is small)
Onto trains. Dong, Zheng, and Kahn (2020) look at collaboration between academics in China when cities are connected by high speed rail. They find similar results (although their results are more fragile and can partially disappear depending on the econometric method): after a high-speed rail line is built between two cities, there is an increase in the number of papers coauthored by academics based in the cities. This effect is strongest when a “secondary” city is connected to a “mega” city, and when the cities are close enough so that high-speed rail becomes faster than air travel.
The trains don’t even need to connect cities to see the effect. Koh, Li, and Xu (2022) studies the impact of the dramatic expansion of the Beijing subway on private sector innovation. The subway system in Beijing grew pretty slowly until the 2000s, when the pace of expansion dramatically ramped up ahead of the 2008 Summer Olympics in Beijing and as part of the government’s stimulus response to the 2007-2008 financial crisis. The number of subway stations went from 41 to 379 between 2000 and 2018, while the total track length grew from 54.1km to 655km over the same time frame. Koh, Li, and Xu cut Beijing up into 0.5km squares and look at what happens to the number of patents by distant collaborators residing in different 0.5km blocks. Across a lot of different approaches,1 they find a subway connection that reduces travel time between blocks by at least an hour leads to a 15-38% increase in patent applications filed.
Lastly, automobiles. Well, roads actually. Agrawal, Galasso, and Oettl (2017) look at what happens to innovation when US regions build more highways. Unlike the other papers mentioned, Agrawal, Galasso, and Oettl look at private sector innovation and focus on the local impact, rather than how interstates enable collaboration across regions. They find a 10% increase in regional highways is associated with 1.7% more regional patents over 5 years.
But peek beneath the surface and this is another story of how falling transportation costs erode the importance of local knowledge. Agrawal, Galasso, and Oettl focus on citations patents make to other patents from the same region: the more roads, the greater the distance between these patents. They also show the impact of roads is strongest in low-density cities, where inventors are more geographically disperse. Intuitively, after my city builds a new interstate I’m more likely to cite patents from across the city instead of across the street, especially if there aren’t many inventors nearby. Roads enable more local-but-not-that-local knowledge flows.
(Aside: there is some reason to be worried that patent citations are a good measure of knowledge spillovers. But that paper worries about the rise of low-quality citations since 2000 and this paper is based on data from the 1980s.)
My take-away? Even if the internet can never replace “face-to-face” communication, technological advance can still erode the importance of local knowledge spillovers by enabling face-to-face communication between people living far apart.
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Catalini, Christian, Christian Fons-Rosen, and Patrick Gaulé. 2020. How do travel costs shape collaboration? Management Science 66(8): 3295-3798. https://doi.org/10.1287/mnsc.2019.3381
Dong, Xiaofang, Siqi Zheng, and Matthew E. Kahn. 2020. The role of transportation speed in facilitating high skilled teamwork across cities. Journal of Urban Economics 115: 103212. https://doi.org/10.1016/j.jue.2019.103212
Koh, Yumi, Jing Li, and Jianhuan Xu. 2022. Subway, Collaborative Matching, and Innovation. Review of Economics and Statistics: 1-45. https://doi.org/10.1162/rest_a_01279
Agrawal, Ajay, Alberto Galasso, and Alexander Oettl. 2017. Roads and Innovation. The Review of Economics and Statistics 99(3): 417-434. https://doi.org/10.1162/REST_a_00619