Identifying The Knowledge Spillover Hotspot and its Role in Neighbouring Country Innovation

Abstract

The question on how to finance innovation activities of countries has taken a center stage in economic policy discussions in countries and among regional bodies. Such discussions require a policy direction to present alternative ways of financing innovation activities at lower cost in the face of dwindling resource available to countries and regional bodies for innovation activities. One important way of dealing with this challenge is to invest the limited resources in countries and sectors with the potential of higher knowledge spillover to benefit other countries and sectors. In this study therefore, we investigate to determine the knowledge spillover hotspot countries in Europe and how they affect neighbouring country’s innovation performance. For the purposes of policy to improve innovation performance in Europe, the knowledge spillover hotspot countries will guide European regional bodies to concentrate innovation investments in countries with the potential of high knowledge spillovers for the benefit of other countries. The study specifically investigated R&D spillover and explicit knowledge spillover hotspots in the manufacturing sectors of Europe and their effects.  Data for the study is unstructured and sourced from the World bank with the longest spans being 2005 to 2020 and shortest being 2013 to 2017. In all, nine countries were sampled based on data availability for the study. These countries include Poland, Germany, Slovakia, Slovenia, Lithuania, Belgium, France, Spain and Czech Republic. The study employed panel data analysis. Based on the Hausman test, fixed effect model was chosen as against random effect model. The results of the study show that after controlling for institutional and economic factors and ensuring robustness against heteroskedasticity and autocorrelation R&D spillover hotspots in Europe include Germany and Slovakia whereas explicit knowledge spillover hotspots are Poland, Slovenia, Lithuania and France. The results of the study have shown that the relationship between knowledge spillover from the hotspot countries and surrounding country’s innovation varies. For some of the hotspots, the relationship is linear whilst in others the relationship is nonlinear. The study also confirm that explicit knowledge is more susceptible to Knowledge  spillover.