Creation of Knowledge

Innovation Clusters and the Geography of Innovation

Innovative activity is highly concentrated in space, more concentrated than production. The clustering of innovative activity is attributed primarily to the fact that innovation involves the transfer of tacit knowledge, which is by its nature highly contextual and difficult to exchange over long distances. Also, innovation increasingly involves interactions between inventors, firms, their customers and suppliers, research organizations, and public agencies. Geographic clustering serves to organize this activity by creating opportunities for chance encounters, observation, and social interaction between the parties.

The tendency for innovative activity to spatially concentrate has increased over time. As innovation has come to involve more parties, efficiencies from agglomeration have increased. Forces of globalization and international competition have encouraged U.S. export industries, which are highly knowledge and innovation intensive, to seek and realize greater efficiencies from clustering. The increase in clustering of innovative activity has been accompanied by a divergence in levels of education and prosperity across regions. Increasingly, the most educated and prosperous U.S. regions are those that have developed important innovation clusters.

The factors determining the particular location of an innovation cluster are idiosyncratic and often involve a special set of historical circumstances that would be difficult to replicate. Innovation clusters usually develop near research universities but the presence of a research university in an area does not guarantee that a cluster will develop there. Biotechnology offers the most recent example of an important new industry built directly on basic scientific research in which commercial firms are known to have close ties to university-based scientists and where universities played an important role in determining industry location. Techniques for genetic engineering would eventually become standardized and widely known. But for 15 years following the discovery of recombinant DNA, knowledge of gene transfer and how to identify promising gene sequences was held by a small group of discovering scientists. Knowledge of the techniques was difficult to transfer because of its complexity and tacitness. Commercial development required frequent face-to-face contact with discovering scientists. Since many of these scientists were academics who were unwilling to leave university appointments, their location served to determine the location of new commercial biotech firms.

References

Asheim, B. and M. Gertler, “The Geography of Innovation: Regional Innovation Systems.” In J. Fagerberg, D. Mowery and R. Nelson, eds., The Oxford Handbook of Innovation. Oxford: Oxford University Press, 2005, pp. 291-317. https://www.oxfordhandbooks.com/view/10.1093/oxfordhb/9780199286805.001.0001/oxfordhb-9780199286805-e-11

This highly conceptual paper explains why innovative activity is so geographically concentrated. The authors attribute the clustering of innovative activity primarily to the fact that innovation requires the transfer of tacit knowledge, which is by nature highly contextual and difficult to exchange over long distances, and that it increasingly involves interactions between firms, their customers and suppliers, research organizations, and public agencies. The paper explains what is meant by a “regional innovation system” and identifies alternative varieties, contrasting the more planned and institutionalized systems in Germany and Nordic countries that excel at incremental innovation in industries that intensively use knowledge of mechanical engineering, with systems in the United States and the U.K. which are more radical or disruptive in nature and are more science-based, entrepreneurial, and venture-capital reliant.

Darby, M. and L. Zucker, “Growing by Leaps and Inches: Creative Destruction, Real Cost Reduction, and Inching Up,” Economic Inquiry 41 (2003): 1-19. https://www.dallasfed.org/-/media/Documents/research/pubs/science/darby.pdf?la=en

The authors argue that “metamorphic” innovations—those associated with the creation of new industries or radical technological transformation in an existing industry—typically are driven by breakthrough discoveries in science and engineering. Examples include integrated circuits, recombinant DNA, and nanotechnology. These kinds of discoveries are not well understood initially and cannot be codified. In the beginning, the new knowledge is largely tacit, so transfer and application to industry requires bench-level relationships between industry scientists and the pioneering scientists. One implication of this scenario of technological progress is that if the scientist making the metamorphic discovery has a university appointment that he/she wishes to maintain and does not want to commute long distances, he/she will serve as a fixed factor that determines the location of firms entering the market to develop the new technology.

Feldman, M., “Location and Innovation: The New Economic Geography of Innovation, Spillovers, and Agglomeration.” In G. Clark, M. Feldman, and M. Gertler, eds., The Oxford Handbook of Economic Geography. Oxford: Oxford University Press, 2000, pp. 373-394. https://www.academia.edu/734077/Location_and_innovation_the_new_economic_geography_of_innovation_spillovers_and_agglomeration

A review of studies that provide empirical evidence of knowledge spillovers and the localized nature of some types of knowledge flows is included in this paper. Categories of evidence reviewed include (1) estimates of geographic innovation production functions that show that innovation output in the corporate sector depends not only on local corporate R&D spending but also on the R&D spending of local universities; (2) analysis of data on patent citations that show that an existing patent is more likely to be cited by future patent applicants if the existing patent holder resides in the same area as the patent applicant; (3) case studies of the tendency for start-up firms in a new industry to locate near sources of intellectual human capital; and (4) studies that attempt to measure the tacitness of the knowledge involved in particular R&D

projects and then find that R&D activity is more geographically concentrated the more tacit is the knowledge involved.

Feldman, M. and D. Kogler, “Stylized Facts in the Geography of Innovation.” In B. Hall and N. Rosenberg, eds., Handbook of the Economics of Innovation Vol. 1. Elsevier, 2010, pp. 381-410. https://maryannfeldman.web.unc.edu/wp-content/uploads/sites/1774/2011/11/Stylized-Facts-in-Geo-of-Innov_2010.pdf

This is a large literature review of the broad topic of the geography of innovation. The review is organized around eight points of economics over which there is broad agreement among economic geographers. These points can be summarized as follows:

(1) Innovative activity is highly concentrated across space, more concentrated than production.

(2) Modern innovation generally is not conducted within the boundaries of a single firm but involves many individuals and entities.

(3) Agglomeration economies that derive from industry clustering and/or urbanization are a powerful determinant of differences in the attributes of locations that influence decisions by firms and households about where to locate.

(4) Because of the tacit nature of new knowledge, spatial proximity and face-to-face interaction are crucial to the process of innovation.

(5) Knowledge spillovers in innovation are seemingly invisible but can be detected using techniques such as patent citation analysis and an analysis of the locational coincidence between star scientists and commercial start-ups.

(6) Local research universities are necessary but not sufficient for developing a local innovation cluster.

(7) Success in innovation requires not only access to local sources of tacit knowledge but also connections with sources of knowledge and expertise that are outside of the local environment.

(8) Most industrial high-tech clusters evolved through a special set of historical circumstances that would be difficult to replicate.

Moretti, E. The New Geography of Jobs, New York: Houghton Mifflin Harcourt, 2012. https://freebookarchive.com/download-free-ebooks/society-social-sciences/download-the-new-geography-of-jobs-enrico-moretti-ebook/

In this highly readable book written for a lay audience, Moretti discusses the increasing importance of industrial high-tech clusters in the U.S. economy. The author explains the basic principles of agglomeration economies and provides accounts of the special historical circumstances associated with the clustering of entertainment firms in Hollywood, semiconductor manufacturers in Silicon Valley, and software firms in Seattle. This book also gives early notice of how industry clustering is bringing about a divergence in levels of education and prosperity across the U.S.

Zucker, L., M. Darby, and M. Brewer, “Intellectual Human Capital and the Birth of U.S. Biotechnology Enterprises,” American Economic Review 88 (March 1998): 290-306. https://www.nber.org/papers/w4653

Zucker, Darby, and Brewer were among the first to systematically test for a geographic coincidence between new biotechnology firms and university scientists who made early contributions to gene sequencing. The authors first identify a set of “star scientists” who were highly productive in discovering gene sequences. These scientists represented only 0.75 percent of the authors in GenBank but accounted for 17 percent of the published articles—22 times the number of the average author. Zucker, et al. then determine that the location of star scientists who were active in gene sequencing research between 1976 and 1980 was a powerful predictor of the geographic distribution of biotech firms in 1990.