Laura Bottazzi and Giovanni Peri estimated the effect of research externalities across space, in generating innovation. They used R&D and patent data for 68 European Regions from 1977 to 1995 and found that regional spillovers exist within a distance of 300 Km.
Doubling R&D spending in a region would increase the output of new ideas in other regions within 300 Km only by 2-3%, while it would increase the innovation of the region itself by 80-90%. Given the small size and the limited range of diffusion, they interpret these externalities as the result of local diffusion of non-codified knowledge, embodied in people and spreading via personal contacts. This interpretation is reinforced by the finding that spillovers are somewhat weaker across national borders.
Paper download: ftp://ftp.igier.uni-bocconi.it/wp/2002/215.pdf