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Understanding the Inputs into Innovation: Do Cities Substitute for Internal Firm Resources?


  • Chris Forman
  • Avi Goldfarb
  • Shane Greenstein


"We examine whether there is a trade-off between employing internal (firm) resources and purchased external (local) resources in process innovation. We draw on a rich dataset of Internet investments by 86,879 US establishments to examine decisions to invest in advanced Internet technology. We show that the marginal contribution of internal resources is greater outside of a major urban area than inside one. Agglomeration is less important for firms with highly capable IT workers. When firms invest in innovative processes they act as if resources available in cities are partial substitutes for both establishment-level and firm-level internal resources." Copyright (c) 2008, The Author(s) Journal Compilation (c) 2008 Blackwell Publishing.

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  • Chris Forman & Avi Goldfarb & Shane Greenstein, 2008. "Understanding the Inputs into Innovation: Do Cities Substitute for Internal Firm Resources?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(2), pages 295-316, June.
  • Handle: RePEc:bla:jemstr:v:17:y:2008:i:2:p:295-316

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    References listed on IDEAS

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    Cited by:

    1. Andrea Caragliu & Chiara F. Del Bo & Karima Kourtit & Peter Nijkamp, 2016. "The winner takes it all: forward-looking cities and urban innovation," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 56(3), pages 617-645, May.
    2. Angela Rocio Vasquez-Urriago & Andrés Barge-Gil & Aurelia Modrego Rico, 2016. "Which firms benefit more from being located in a Science and Technology Park? Empirical evidence for Spain," Research Evaluation, Oxford University Press, vol. 25(1), pages 107-117.
    3. Vladimirov, Zhelyu & Simeonova-Ganeva, Ralitsa & Ganev, Kaloyan, 2012. "Interaction of leading and supporting factors for the SME competitiveness," MPRA Paper 37251, University Library of Munich, Germany.
    4. repec:spr:scient:v:96:y:2013:i:3:d:10.1007_s11192-013-0970-3 is not listed on IDEAS
    5. Chris Forman & Avi Goldfarb & Shane Greenstein, 2014. "Information Technology and the Distribution of Inventive Activity," NBER Chapters,in: The Changing Frontier: Rethinking Science and Innovation Policy, pages 169-196 National Bureau of Economic Research, Inc.
    6. Martin, Ludivine, 2009. "Understanding the implementation of e-business strategies: Evidence from Luxembourg," MPRA Paper 13645, University Library of Munich, Germany.
    7. George Deltas & Seung-Hyun Hong, 2009. "Heterogeneity and Information Spillovers in Web Service Sourcing," Working Papers 09-20, NET Institute, revised Sep 2009.
    8. Chris Forman, 2013. "How has information technology use shaped the geography of economic activity?," Chapters,in: Handbook of Industry Studies and Economic Geography, chapter 10, pages 253-270 Edward Elgar Publishing.
    9. David Dranove & Chris Forman & Avi Goldfarb & Shane Greenstein, 2014. "The Trillion Dollar Conundrum: Complementarities and Health Information Technology," American Economic Journal: Economic Policy, American Economic Association, vol. 6(4), pages 239-270, November.
    10. Chris Forman & Avi Goldfarb & Shane Greenstein, 2012. "The Internet and Local Wages: A Puzzle," American Economic Review, American Economic Association, vol. 102(1), pages 556-575, February.
    11. Vladimirov, Zhelyu & Simeonova-Ganeva, Ralitsa & Ganev, Kaloyan, 2013. "Significance of globalization-specific factors for SME competitiveness: a conceptual model and an empirical test," MPRA Paper 63518, University Library of Munich, Germany.
    12. McGuirk, Helen & Lenihan, Helena & Hart, Mark, 2015. "Measuring the impact of innovative human capital on small firms’ propensity to innovate," Research Policy, Elsevier, vol. 44(4), pages 965-976.
    13. Arora, Ashish & Forman, Chris & Yoon, Ji Woong, 2010. "Complementarity and information technology adoption: Local area networks and the Internet," Information Economics and Policy, Elsevier, vol. 22(3), pages 228-242, July.
    14. Greenstein, Shane, 2010. "Innovative Conduct in Computing and Internet Markets," Handbook of the Economics of Innovation, Elsevier.
    15. Chris Forman & Nicolas van Zeebroeck, 2012. "From Wires to Partners: How the Internet Has Fostered R&D Collaborations Within Firms," Management Science, INFORMS, vol. 58(8), pages 1549-1568, August.
    16. Arora, Ashish & Gambardella, Alfonso, 2010. "The Market for Technology," Handbook of the Economics of Innovation, Elsevier.

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