The effects of the frequency of spatially proximate and distant interaction on innovation by Irish SMEs

Abstract

This paper tests whether more frequent interaction at different spatial levels has a positive effect on the innovation performance of small- and medium-sized enterprises (SMEs) in the South-West and South-East of Ireland. Based on an original survey, it finds that more frequent interaction generally increases innovation likelihood, but at a diminishing rate, thus suggesting a trade-off between resources dedicated to transforming knowledge into new products and processes. Spatially distant interaction is found to be at least as valuable as proximate interaction, which questions the received wisdom that the best sources of knowledge are regional. Given the value of distant interaction, the results indicate that regional lock-in may be an obstacle to superior innovation performance of SMEs.

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