"Knowledge, Proximity and R&D Exodus".

We focus on R&D laboratory closure to determine how the innovation activity in a specific area and proximity to other firms influences the location strategies of firms. We use interviews with R&D managers in India to motivate our hypotheses and draw on a unique dataset of R&D laboratories in India during 2003-2010 to empirically examine them. Our results indicate closure is positively affected by concerns over knowledge spillovers to nearby local firms in the same industry and concerns about crowding out of local labor markets to nearby foreign labs in the same industry. However, these effects are not homogeneous but depend on a firm's characteristics. The effects on closure are significant when the focal firm is large or small but not of intermediate size, suggesting that the downsides of agglomeration are not confined to large advanced firms but also detrimentally effect small firms. [ABSTRACT FROM AUTHOR]