INNOVATIVE CLUSTERS AND THE INDUSTRY LIFE-CYCLE

The purpose of this paper is to link the propensity for innovative act ivity to spatially cluster to the stage of the industry life cycle. Th e theory of knowledge spillovers, based on the knowledge production fu nction for innovative activity, suggests that geographic proximity mat ters the most where tacit knowledge plays an important role in the gen eration of innovative activity. According to the emerging literature o f the industry life cycle, tacit knowledge plays the most important ro le during the early stages of the industry life cycle. Based on a data base that identifies innovative activity for individual states and sp ecific industries for the United States, the empirical evidence sugges ts that the propensity for innovative activity is shaped by the stage of the industry life cycle. While the generation of new economic knowl edge tends to result in a greater propensity for innovative activity t o cluster during the early stages of the industry life cycle, innovati ve activity tends to be more highly dispersed during the mature and de clining stages of the life cycle, particularly after controlling for t he extent to which the location of production is geographically concen trated. This may suggest that the positive agglomeration effects durin g the early stages of the industry life cycle become replaced by conge stion effects during the latter stages of the industry life cycle.