The Johns Hopkins University series on Entrepreneurship
Edited by Gideon D. Markman and Phillip H. Phan
Chapter 12: A Retrospective on Desperately Seeking Spillovers?
Barak S. Aharonson, Joel A.C. Baum, and Maryann P. Feldman ‘Desperately seeking spillovers?’ (Aharonson et al., 2007) examines the location decisions of Canadian biotechnology startups during the 1990s. It is well established that concentrated regions of inventive activity (e.g., cities, states, countries) attract greater entry of new firms. Our focus, in contrast, is on micro-location patterns of entry within such regions, and the role of potential knowledge spillovers in shaping entrants’ choice of location. Examining entry location decisions within concentrated inventive areas facilitates an understanding of factors that encourage firms to co-locate and the nature of agglomeration benefits sought by entrepreneurial firms. The paper makes two main contributions. The first is demonstrating that location decisions in our empirical setting are very fine-grained. The paper presents evidence that biotechnology startups have a strong preference for close proximity—within 500 meters (m), or roughly one-third of a mile— to inventively active incumbents (indexed by incumbent firms’ number of R&D employees and R&D expenditures) with a similar specialization (e.g., therapeutics, agriculture, aquaculture). Supporting a knowledge spillover-seeking interpretation for this behavior, these proximity effects dissipate rapidly, with incumbents’ inventive activity beyond 500 m having little influence on entrants’ location decisions. Indeed, entrants appear to actively avoid locations more distant from such inventive activity. The second contribution is evidence that two contextual factors influence entrants’ tendency toward spillover-seeking. The first is technological similarity. As already noted, the findings indicate that knowledge spillover-seeking depends on the entrant and incumbents sharing a relatively narrow...
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