Quantitative Economics: Jul, 2011, Volume 2, Issue 2

Is distance dying at last? Falling home bias in fixed-effects models of patent citations

Rachel Griffith, Sokbae Lee, John Van Reenen

We examine the “home bias” of knowledge spillovers (the idea that knowledge
spreads more slowly over international boundaries than within them) as mea-
sured by the speed of patent citations. We present econometric evidence that the
geographical localization of knowledge spillovers has fallen over time, as we would
expect from the dramatic fall in communication and travel costs. Our proposed
estimator controls for correlated fixed effects and censoring in duration models,
and we apply it to data on over two million patent citations between 1975 and
1999. Home bias is exaggerated in models that do not control for fixed effects.
The fall in home bias over time is weaker for the pharmaceuticals and informa-
tion/communication technology sectors where agglomeration externalities may
remain strong.
Keywords. Fixed effects, home bias, patent citations, knowledge spillovers.
JEL classification. F23, O32, O33.

---

---

Supplemental Material