Cross-border Commuters and Knowledge Diffusion

Abstract: Patents disclose knowledge, yet this disclosure is often insufficient for the knowledge to be put into practice and used for cumulative innovation. Firms rely on workers possessing tacit knowledge or specific skills to effectively build on the ideas of others. In this study, we examine the effects of expanding Swiss firms’ access to the German labor market on the diffusion of knowledge developed in Germany to Switzerland. We investigate the impact of a reform implemented in 2002, which eliminated the restrictions Swiss firms previously faced in hiring German cross-border commuters. We find that following the reform’s implementation, German patents originating from locations within close commuting distance to the Swiss-German border are more heavily cited by Swiss applicants. Moreover, we observe an increase in the number of new Swiss patents that are textually similar to patents from the German border region. Knowledge diffusion effects are particularly pronounced for cumulative innovation at an intermediate technological distance to the original German invention. Such inventions introduce at least one new technology field of application while having at least one common field. Additionally, we find that the effects are concentrated in fields where Switzerland is relatively closer to the knowledge frontier than the neighboring German regions. (joint with Gabriele Cristelli)