Working Paper: CEPR ID: DP9766
Authors: Ajay Agrawal; Iain M. Cockburn; Alberto Galasso; Alexander Oettl
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.
Keywords: cities; externalities; firm size diversity; innovation; patents; spinouts
JEL Codes: L16; O18; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm size diversity (L25) | innovation productivity (O49) |
| firm size diversity (L25) | spinout formation (C69) |
| strong noncompete laws (L49) | firm size diversity's effect on innovation (L25) |