DP6435 Is Distance Dying at Last? Falling Home Bias in Fixed Effects Models of Patent Citations

Author(s): Rachel Griffith , Sokbae Lee , John Van Reenen

Publication Date: September 2007

Keyword(s): fixed effects , home bias , knowledge spillovers , patent citations

JEL(s): F23 , O32 , O33

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP6435.asp.asp

We examine the 'home bias' of international knowledge spillovers as measured by the speed of patent citations (i.e. knowledge spreads slowly over international boundaries). We present the first compelling 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 citations between 1975 and 1999. Home bias declines substantially when we control for fixed effects: there is practically no home bias for the more 'modern' sectors such as pharmaceuticals and information/communication technologies.