We use the results of the policies, appropriation and competitiveness in Europe (PACE) 1993 survey of Europe's largest firms to explore the effect of proximity on knowledge flows from affiliated firms, suppliers, customers, joint ventures, competitors and public research organisations to innovative firms. The focus is on the last. First, we find that public science is among the most important sources of technical knowledge for the innovative activities of Europe's largest industrial firms. Then, after comparing the PACE results with the Community Innovation Survey II (1997) and the Carnegie Mellon Survey (1994), we use the unique information from the PACE survey on the geographic location of knowledge sources and the methods used to access them to develop an econometric analysis of proximity and location. The importance of proximity for sourcing knowledge from public research increases with the quality and output of domestic public research organisations and the importance given to public science by the respondents. It declines with an increase in the firm's R&D expenditure, activity in the North American market and the importance to the firm of codified basic research results. Surprisingly, firms that find informal contacts to be an important method for acquiring public research results are more likely to find proximity less important, even though proximity allows firms to access tacit knowledge. This effect is primarily limited to European countries, suggesting the development of a 'European Research Area'.
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