In this paper we consider a panel data model with error components that are both spatially and time-wise correlated. The model blends specifications typically considered in the spatial literature with those considered in the error components literature. We introduce generalizations of the generalized moments estimators suggested in Kelejian and Prucha (1999) for estimating the spatial autoregressive parameter and the variance components of the disturbance process. We then use those estimators to define a feasible generalized least squares procedure for the regression parameters. We give formal large sample results for the proposed estimators. We emphasize that our estimators remain computationally feasible even in large samples.

With globalisation and knowledge-based production, firms may cooperate on a global scale, outsource parts of their administrative or productive units and negate location altogether. The extremely low transaction costs of data, information and knowledge seem to invalidate the theory of agglomeration and the spatial clustering of firms, going back to the classical work by Alfred Weber (1868-1958) and Alfred Marshall (1842-1924), who emphasized the microeconomic benefits of industrial collocation. This paper will argue against this view and show why the growth of knowledge societies will rather increase than decrease the relevance of location by creating knowledge clusters and knowledge hubs. A knowledge cluster is a local innovation system organized around universities, research institutions and firms which intend to drive innovations and create new industries. Knowledge hubs are localities with a knowledge architecture of high internal and external networking and knowledge sharing capabilities. Countries or regions form an epistemic landscape of knowledge assets, structured by knowledge hubs, knowledge gaps and areas of high or low knowledge intensity. The paper will focus on the internal dynamics of knowledge clusters and knowledge hubs and

Abstract. The purpose of this paper is to link the propensity for innovative activity to spatially cluster to the stage of the industry life cycle. The theory of knowledge spillovers, based on the knowledge production function for innovative activity, suggests that geographic proximity matters the most where tacit knowledge plays an important role in the generation of innovative activity. According to the emerging literature of the industry life cycle, tacit knowledge plays the most important role during the early stages of the industry life cycle. Based on a data base that identifies innovative activity for individual states and specific industries for the United States, the empirical evidence suggests that the propensity for innovative activity is shaped by the stage of the industry life cycle. While the generation of new economic knowledge tends to result in a greater propensity for innovative activity to cluster during the early stages of the industry life cycle, innovative activity tends to be more highly dispersed during the mature and declining stages of the life cycle, particularly after controlling for the extent to which the location of production is geographically concentrated. This may suggest that the positive agglomeration effects during the early stages of the industry life cycle become replaced by congestion effects during the latter stages of the industry life cycle.

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grateful to the comments and suggestions made by Luigi Guiso. Feldman acknowledges

suggestions. We are also deeply indebted to the many administrators, scientists, managers, and entrepreneurs who agreed to be interviewed. Martha Cobb and Melissa

According to the knowledge spillover theory of entrepreneurship, people start a new firm because they are not able to commercialize their ideas and knowledge within the context of an incumbent firm or organization. Entrepreneurship therefore serves as a conduit for the spillover of knowledge from the firm or organization where that knowledge was created to its commercialization in the organizational context of a new firm. Because it facilitates the spillover and commercialization of knowledge that might otherwise have remained dormant and uncommercialized within the incumbent firm generating that knowledge in the first place, entrepreneurship has a positive impact on economic growth. 2 Where do new opportunities come from and what is the response of decision makers when confronted by such new opportunities? The disparate approaches pursued to answer to these questions distinguish the literature on entrepreneurship from that on firm innovation. The model of the knowledge production function of the firm has assumed the

Why are some places more entrepreneurial than others? We use Census Bureau data to study local determinants of manufacturing startups across cities and industries. Demographics have limited explanatory power. Overall levels of local customers and suppliers are only modestly important, but new entrants seem particularly drawn to areas with many smaller suppliers, as suggested by Chinitz (1961). Abundant workers in relevant occupations also strongly predict entry. These forces plus city and industry fixed effects explain between 60 % and 80 % of manufacturing entry. We use spatial distributions of natural cost advantages to address partially endogeneity concerns. 1.

The authors thank Kristy Buzard for her excellent research assistance. We also thank Annette Fratantaro for her work on the Compustat variables and Jim Hirabayashi, of the U.S. Patent and Trademark Office, for his gracious response to our many questions. This paper has

Summary. The aim of this paper is to outline the importance of tacit knowledge in the innovation process and to highlight the way that geographical location not only in uences the relationship between knowledge and innovative activity, but also affects the way that such interaction in uences the geography of innovation and economic activity. After a discussion about the nature of knowledge, the paper explores the relationship that exists between knowledge and geography. The paper then reviews, using as an analytical lens, the growing body of literature on knowledge spillovers which af rm the importance of geography. However, the discussion then seeks to outline some crucial gaps that remain in our conceptualisation of the knowledge spillover and transfer process. The paper then highlights the neglected role of knowledge demand and consumption in a spatial context, before concluding with a review of areas for future research. 1.