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Discussion Paper Details

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Title: Why are some regions more innovative than others? The role of firm size diversity

Author(s): Ajay Agrawal, Iain M Cockburn, Alberto Galasso and Alexander Oettl

Publication Date: December 2013

Keyword(s): cities, externalities, firm size diversity, innovation, patents and spin-outs

Programme Area(s): Industrial Organization and International Trade and Regional Economics

Abstract: Large firms spawn spin-outs caused by innovations deemed unrelated to the firm's overall business. Small firms generate demand for specialized services that lower entry costs for others. We 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 in regions where large and small firms coexist. 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.

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Bibliographic Reference

Agrawal, A, Cockburn, I, Galasso, A and Oettl, A. 2013. 'Why are some regions more innovative than others? The role of firm size diversity'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9766