Local industrial cohesion as a diffusion mechanism for incremental knowledge: evidence from business and economic indicators in U.S. Counties

Abstract This paper extends the Knowledge Spillover Theory of Entrepreneurship (KSTE) by incorporating the role of incremental knowledge spillovers as a key driver of business performance. The core proposition is that firms embedded in regions with a more cohesive industrial structure, which serves as a diffusion mechanism for incremental knowledge, are better able to absorb, combine and apply such knowledge even in the absence of high R&D capacity. Thus, the focus shifts from radical knowledge to incremental knowledge flows as an alternative engine of firm success. The empirical findings reveal that firms, particularly single-unit and those in non-metropolitan regions, tend to benefit from cohesive industrial structures likely through improved knowledge diffusion. Further analyses establish a positive link between local industrial cohesion and local economic performance measured by employment and income growth. This lends indirect support to the hypothesis that local industrial cohesion leads to greater businesses competitiveness and not the other way around.