Do Only Big Cities Innovate? Technological Maturity and the Location of Innovation
Orlando, Michael J., Verba, Michael, Economic Review (Kansas City, MO)
Innovation enhances economic performance. High rates of innovation are associated with high rates of productivity growth, and faster productivity growth leads to higher real wages and improvements in standards of living. Consequently, many local policymakers are eager to encourage higher rates of innovation in their areas.
Theoretical and empirical studies of the geography of innovation find that relatively populous regions are the most conducive to innovative activity. Large and densely populated places offer more developed markets for the specialized inputs used in innovation. Populous places also offer innovators greater opportunities to learn from one another. On the surface, these findings seem to offer little hope to smaller, more sparsely populated regions--places that would like to compete for innovative activity and the benefits of a knowledge economy.
Are large populations a prerequisite for innovation? This article explores this common perception and finds it is not always true. More populous regions dominate in relatively new technological fields, where innovations are more original. But less populous regions can compete in relatively mature technological fields, where innovations are more incremental. This finding should be of interest to research and development professionals--and to policymakers who are seeking ways to enhance regional innovative activity.
The first section of this article characterizes innovations and then identifies where they occur. The second section explains why more populous places are generally more innovative than less populated places. The third section explains why less populated places may not be at a disadvantage in promoting innovation in mature technological fields. The fourth section examines evidence from patent activity that is consistent with this view. And the fifth section establishes that the concentration of mature innovative activity in less populated areas is not entirely a result of the types of industries that locate in those places.
I. WHAT IS INNOVATION AND WHERE DOES IT OCCUR?
Innovations are new ideas that are valued in the marketplace. Some new ideas create value by introducing new products or services. For example, the vacuum light bulb opened the door to an entirely new set of products. Other new ideas improve existing products. A slightly longer golf tee, for example, makes longer drives possible. (1) Still, other new ideas simply make existing products less costly.
Developers of innovative ideas include independent inventors, private industry, and government and university research facilities. These innovators make discoveries in a variety of ways. Inventors create innovations through intentional effort and by chance. Similarly, private industrial research facilities employ scientists and engineers to discover new ideas, while their production line workers may unintentionally discover new ideas during the normal course of operations. Finally, university and government research facilities hire professors and scientists to develop innovative ideas.
Innovation requires three types of inputs: human resources, capital resources, and knowledge. Research labs pay scientists and engineers to think of valuable new ideas. Private and public researchers also invest in specialized laboratory equipment used for discovery. Finally, innovators may purchase technology licenses for the right to use knowledge developed by other researchers.
Innovators also acquire knowledge by learning from others. For example, research facilities may reverse engineer the products of other firms to discover related opportunities for innovation. Scientists may attend professional conferences or study the patent applications of other innovating firms. Finally, innovators of all kinds may acquire knowledge through social interaction or by simply hiring away another innovators employees.
Innovative activity is widely distributed throughout the United States. …