Exploring the Link between Local and Global Knowledge Spillovers

Abstract We investigate the existence of local (within-country) and global (between-country) knowledge spillovers within a single analytical framework by considering specifically the role of agglomeration economies in fostering interactions between these two types of externalities. Our study is based on a database of Irish manufacturing foreign multinational and domestic plants covering the period 1990-1995. The results of our econometric analysis show that while the R&D undertaken by multinationals active in Ireland has had no significant impact on local plants’ productivity, these multinationals have, nevertheless, through their presence favoured the diffusion of global R&D spillovers. Foreign affiliates in turn have directly gained from the size of the R&D stock in their origin country, but there is no evidence that foreign affiliates located in Ireland have benefited from local R&D spillovers. A fundamental difference between locally generated spillovers and locally transmitted global spillovers appears to be that the latter is much less constrained by distance decay effects.