This paper examines the importance of local knowledge spillovers for the
innovative and economic performance of firms in a developing country
context. Theoretical and empirical studies in advanced economies
underline the significance of local knowledge spillovers for innovation.
However, not much is known about whether local knowledge spillovers work
similarly in developing countries. This analysis is based on an original
innovation survey in the software industry in Uruguay. The survey
focuses on the direct identification and measurement of local knowledge
spillovers; pure knowledge spillovers are distinguished from commercial
knowledge transactions. Both knowledge spillovers and knowledge
transactions are measured at the local and at the international level.
The study concludes that local knowledge spillovers play a crucial role
in enhancing the innovative performance of software firms in Uruguay.
However, for the economic performance of the firms, international
knowledge transactions turn out to be more important than local
knowledge spillovers. Local Knowledge Spillovers may be essential for
innovation, but not sufficient for economic success. Firms in developing
countries need to be connected to both the local and the international
Keywords: local knowledge spillovers, innovation, economic performance, developing economies
JEL Codes: L86 (Information and Internet Services, Computer Software), O31 (Innovation and Invention); O33 (Technological change: Choices and Consequences; Diffusion Processes)
UNU-MERIT Working Papers ISSN 1871-9872