Innovation and Knowledge Spillover with Geographical and Technological Distance in an Agentbased Simulation Model

The paper introduces an agent-based simulation model to study the technological development and the economic performance of firms with potential knowledge spillover in a differentiated industry. The analysis is based on the interaction and behavior of firms, which might share knowledge but at the same time are competitors on the goods markets. The aim of the model is to get a better understanding of the interplay between technological and geographical location decisions and the evolution of specific knowledge in an industry. For this the advantages and disadvantages of two forms of distances are discussed: geographical and cognitive respectively technological distance. First simulation runs indicate that the model is able to describe the technological development and produces plausible industry characteristics. It is shown that geographical proximity enhances innovation, especially the number of product innovations.