Can Government Support for Innovation Create the Next Silicon Valley?

Can government support for innovation create the next Silicon Valley? We examine what public research and development can and cannot do to foster regional knowledge hubs. The historical record suggests that many successful hubs owe their origins partly to serendipity and favorable initial conditions. We then review causal evidence from universities, changes in intellectual property rules, new research institutions, wartime R&D, and the space race. Public R&D can raise local innovation, employment, and income, but the effects are heterogeneous, often modest relative to cost, and may partly reflect the relocation of firms and skilled workers from elsewhere. The evidence suggests a central role for complementary local inputs, including entrepreneurs, risk capital, skilled labor, firms, and institutions. Public R&D can help build a hub, but is unlikely to create one on its own.