Define knowledge spillovers.

Define knowledge spillovers.

• A. Deliberate licensing agreements between firms to share patents.
• B. A government's fiscal transfer to sectors via subsidies.
• C. Unintended diffusion of technology and know-how from one firm or region to others that drives innovation and productivity.
• D. The way consumer preferences diffuse across markets.

Answer: (C)

Knowledge spillovers are the unintended diffusion of technology and know-how from one firm or region to others, and these external effects can boost innovation and productivity beyond the original inventor. This happens because knowledge—especially tacit know-how—is hard to fully contain or monetize; when ideas move through networks, proximity, employee movement, or informal interactions, other firms can learn and build on them without paying for access. That unpriced diffusion is what creates broader benefits to the economy and helps explain why investments in research and development can raise overall growth, not just the fortunes of the initiating firm.

Deliberate licensing involves explicit, contract-based transfers of knowledge, so it isn’t the same as an unintentional spillover. Subsidies are financial transfers to support sectors, not the diffusion of know-how. Diffusion of consumer preferences describes how demand patterns spread, not how technical knowledge or capabilities spread between firms or regions.