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Why are some regions more innovative than others? The role of small firms in the presence of large labs

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  • Agrawal, Ajay
  • Cockburn, Iain
  • Galasso, Alberto
  • Oettl, Alexander

Abstract

We study the impact of small firms on innovation in regions where large labs are present. Small firms generate demand for specialized services that lower entry costs for others. This effect is particularly relevant in the presence of large firms that spawn spin-outs caused by innovations deemed unrelated to the firm’s overall business. We examine MSA-level patent data during the period 1975–2000 and find that innovation output is higher in regions where both a sizable population of small firms and large labs are present. The finding is robust to across-region as well as within-region analysis and the effect is stronger in certain subsamples in a manner that is consistent with our explanation.

Suggested Citation

  • Agrawal, Ajay & Cockburn, Iain & Galasso, Alberto & Oettl, Alexander, 2014. "Why are some regions more innovative than others? The role of small firms in the presence of large labs," Journal of Urban Economics, Elsevier, vol. 81(C), pages 149-165.
    • Handle: RePEc:eee:juecon:v:81:y:2014:i:c:p:149-165
    DOI: 10.1016/j.jue.2014.03.003
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    More about this item

    Keywords

    Innovation; Spin-outs; Cities; Patents; Firm size diversity; Externalities;
    All these keywords.

    JEL classification:

    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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