Knowledge spillovers from local innovative industrial clusters: A business group network perspective

Transcending the spatial “stickiness” of knowledge is essential for mitigating regional innovation gaps, yet the mechanisms by which localized cluster externalities diffuse across regions remain underexplored. Integrating the organisational embeddedness perspective with agglomeration theory, this study investigates how business group networks internalise and redistribute knowledge generated by local innovative industrial clusters. We exploit China's National Innovative Industrial Cluster Pilot (NIICP) policy as a quasi-experimental policy setting, and leverage a matched panel dataset of Chinese A-share listed firms and their domestic subsidiaries over 2009-2022. The results demonstrate that the development of local innovative industrial clusters generates significant internalised cluster spillovers within business groups, thereby enhancing the innovation performance of affiliated firms. These effects are spatially asymmetric: non-local affiliates benefit substantially, whereas the impact on local affiliates is limited. Mechanism analysis reveals three main channels through which cluster development affects affiliated firms: internal knowledge coordination and integration within business groups, external agglomeration of innovation resources, and competitive crowding-out within clusters. Further analysis shows that the spillover effects are stronger when intra-group linkages are tighter or when host regions of non-local affiliates are characterised by weaker institutional environments. These findings challenge purely geographic views of agglomeration, suggesting that multi-locational organisational networks are critical for overcoming the spatial trap of innovation resources. • China's NIICP cluster pilots provide a quasi-natural experiment. • Business group networks internalise and transmit cluster knowledge. • Cluster policies raise innovation in non-local affiliates more than local ones. • Spillovers operate through internal coordination, external resources and crowding out. • Strong intra-group linkages and weak institutions amplify internalised spillover effects.