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Why are Some Regions More Innovative than Others? The Role of Firm Size Diversity

  • Ajay K. Agrawal
  • Iain M. Cockburn
  • Alberto Galasso
  • Alexander Oettl

Large labs may spawn spin-outs caused by innovations deemed unrelated to the firm's overall business. Small labs generate demand for specialized services that lower entry costs for others. We develop a theoretical framework to study the interplay of these two localized externalities and their impact on regional innovation. We examine MSA-level patent data during the period 1975-2000 and find that innovation output is higher where large and small labs coexist. The finding is robust to across-region as well as within-region analysis, IV analysis, and the effect is stronger in certain subsamples consistent with our explanation but not the plausible alternatives.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17793.

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Date of creation: Jan 2012
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Handle: RePEc:nbr:nberwo:17793
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