Innovation spillovers: A cellular automata model

The assumption of innovation spillovers is a major aspect of many endogenous growth models. These models assume that a firm can learn from the total stock of innovations, or more generally 'knowledge', in the entire economy ('global spillovers'). In contrast, the extensive empirical work on spillovers has endeavoured to incorporate the intuitively plausible fact that spillovers are likely to be stronger between certain firms. In empirical work, researchers have weighted the spillover effect by measures of technological, geographical or trade-related closeness. Thus, the empirical work assumes that spillovers are 'local' not 'global' in extent. This paper provides a new theoretical method of analysing local innovation spillovers by using a cellular automata framework. This framework, in contrast to the endogenous growth models, allows us to explicitly model localised spillovers. Within this framework we compare localised spillovers with global spillovers. The results show that the localised spillover case is not merely a proportional reduction of the global spillovers case.