Executive summary

View the most recent version.

Knowledge spillovers associated with the diffusion of new technologies have long been viewed as important drivers of economic growth. However, this claim has largely resisted econometric scrutiny because patterns of technology adoption are generally not observable. This paper overcomes the problem by exploiting a proprietary panel data set that reports the adoption of 22 advanced-manufacturing technologies by 1,902 Canadian plants. The paper starts with documenting the fact that the adoption of these technologies is more highly concentrated geographically (i.e., agglomerated) than other forms of economic activity. Motivated by this fact, it tests for knowledge spillovers by investigating how a plant's probability of adopting a new technology depends on the presence of prior adopters. The results indicate that technology adoption is facilitated by the presence of prior adopters with four characteristics. First, they are adopters of the same technology (as opposed to advanced technologies in general). Second, they reside in the same region. Third, they are similar to the potential adopter in that they purchase a similar set of intermediate goods and services. Finally, they are dissimilar to the potential adopter in that they do not operate in the same product market (i.e., the same 4-digit Standard Industrial Classification code). These results are robust when controlling for the effects of regional labour pooling, regional linkages to suppliers and buyers, as well as industry-, region-, time- and technology-fixed effects. These findings strongly suggest that knowledge spillovers are one of the driving forces of agglomeration in the adoption of new technologies.