Geographical clusters and innovation diffusion

There is a considerable body of evidence to demonstrate that the diffusion of new technologies is spatially variable. If firms rely on each other to l earn about new technology, the diffusion process is punctuated by cognitive externalities, allowing for an easier spread of usage and improvements. Th e present paper argues that externalities promoting the adoption of new tec hnology are stronger at the regional level and depend positively on the pro ximity of early users. The results of the empirical work presented verify t he importance of geography and inter-firm networking in the process of know ledge transfer and diffusion, suggesting new approaches to technology trans fer and technology policy. (C) 2001 Elsevier Science Inc.