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Innovation in Space

Author

Listed:
  • Klaus Desmet
  • Esteban Rossi-Hansberg

Abstract

This paper shows how competition for land may lead firms to optimally innovate in spite of the market being perfectly competitive. When bidding for a location, firms can enhance their bid by investing in innovations that make the land more valuable. Firms are willing to innovate because the non-replicability of land implies that they will not be undercut by some other producer leading to losses as in the standard theory. In the absence of spillovers over space and over time, firms will optimally innovate. Empirical evidence from U.S. metropolitan areas supports the predictions of the theory.

Suggested Citation

  • Klaus Desmet & Esteban Rossi-Hansberg, 2012. "Innovation in Space," American Economic Review, American Economic Association, vol. 102(3), pages 447-452, May.
    • Handle: RePEc:aea:aecrev:v:102:y:2012:i:3:p:447-52
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.102.3.447
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    References listed on IDEAS

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    1. Hellwig, Martin & Irmen, Andreas, 2001. "Endogenous Technical Change in a Competitive Economy," Journal of Economic Theory, Elsevier, vol. 101(1), pages 1-39, November.
    2. Michele Boldrin & David K. Levine, 2004. "2003 Lawrence R. Klein Lecture The Case Against Intellectual Monopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 327-350, May.
    3. Davis, Morris A. & Palumbo, Michael G., 2008. "The price of residential land in large US cities," Journal of Urban Economics, Elsevier, vol. 63(1), pages 352-384, January.
    4. Mansfield, Edwin, 1985. "How Rapidly Does New Industrial Technology Leak Out?," Journal of Industrial Economics, Wiley Blackwell, vol. 34(2), pages 217-223, December.
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    Citations

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    Cited by:

    1. Steven Bond-Smith, 2021. "The unintended consequences of increasing returns to scale in geographical economics [Investing for prosperity: skills, infrastructure and innovation]," Journal of Economic Geography, Oxford University Press, vol. 21(5), pages 653-681.
    2. Wen, Jun & Duan, Hai-Peng & Chang, Chun-Ping & Zhao, Xin-Xin, 2025. "The impact of country risk on innovation: Global evidence," Economic Systems, Elsevier, vol. 49(2).
    3. Liu, Ying & Liu, Steve & Wu, Ziqi & Xiao, Yi, 2022. "How do technological innovations affect corporate investment and hiring?," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    4. Desmet, Klaus & Henderson, J. Vernon, 2015. "The Geography of Development Within Countries," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 1457-1517, Elsevier.
    5. Gregor Schwerhoff & Martin Stuermer, 2015. "Non-renewable resources, extraction technology, and endogenous growth," Working Papers 1506, Federal Reserve Bank of Dallas.
    6. Breinlich, Holger & Ottaviano, Gianmarco I.P. & Temple, Jonathan R.W., 2014. "Regional Growth and Regional Decline," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 4, pages 683-779, Elsevier.
    7. Gani Aldashev & Serik Aldashev & Timoteo Carletti, 2014. "On Convergence in the Spatial AK Growth Models," Papers 1401.4887, arXiv.org.
    8. Cui, Huijie & Dai, Lixuan & Zhang, Yanan, 2021. "Organization Capital and Corporate Innovation: Evidence from China," Finance Research Letters, Elsevier, vol. 43(C).
    9. Sergey Kichko & Wen-Jung Liang & Chao-Cheng Mai & Jacques-Francois Thisse & Ping Wang & Sergei Kichko, 2020. "The Rise (and Fall) of Tech Clusters," CESifo Working Paper Series 8527, CESifo.
    10. Steven Bond-Smith & Philip McCann & Les Oxley, 2018. "A regional model of endogenous growth without scale assumptions," Spatial Economic Analysis, Taylor & Francis Journals, vol. 13(1), pages 5-35, January.

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