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

Ajay Agrawal, Iain Cockburn (), Alberto Galasso and Alexander Oettl ()

Journal of Urban Economics, 2014, vol. 81, issue C, 149-165

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.

Keywords: Innovation; Spin-outs; Cities; Patents; Firm size diversity; Externalities (search for similar items in EconPapers)
JEL-codes: L16 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.jue.2014.03.003

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