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Urban Agglomeration and Firm Innovation: Evidence from Asia

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  • Chen, Liming

    (Asian Development Bank)

  • Hasan, Rana

    (Asian Development Bank)

  • Jiang, Yi

    (Asian Development Bank)

Abstract

This paper presents evidence on the spatial distribution and effects of urban agglomeration on firm innovation. It uses a unique dataset that consistently defines city boundaries and identifies firms’ innovation-related activities across 25 developing countries in Asia. We find firm innovation to be highly concentrated at the city level. We also find substantial gains from increases in city population in terms of firms’ propensity to introduce process and product innovations and undertake research and development (R&D) activities. These gains remain even after addressing concerns regarding endogeneity through the use of historical population data as instruments. In addition, we present evidence that knowledge spillovers are an important channel through which agglomeration effects occur, specifically through the presence of top-tier universities in a given city and by raising the effectiveness of firms’ R&D efforts. These findings confirm the existence and significance of urban economies of scale in augmenting the knowledge flows that generate innovation.

Suggested Citation

  • Chen, Liming & Hasan, Rana & Jiang, Yi, 2020. "Urban Agglomeration and Firm Innovation: Evidence from Asia," ADB Economics Working Paper Series 616, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0616
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Reyes,Jose Daniel & Roberts,Mark & Xu,L. Colin, 2017. "The heterogeneous growth effects of the business environment : firm-level evidence for a global sample of cities," Policy Research Working Paper Series 8114, The World Bank.
    3. Strange, William & Hejazi, Walid & Tang, Jianmin, 2006. "The uncertain city: Competitive instability, skills, innovation and the strategy of agglomeration," Journal of Urban Economics, Elsevier, vol. 59(3), pages 331-351, May.
    4. Judy S. Yang, 2017. "The governance environment and innovative SMEs," Small Business Economics, Springer, vol. 48(3), pages 525-541, March.
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    Cited by:

    1. John Gibson & Yi Jiang & Bambang Susantono, 2022. "Revisiting the role of secondary towns: Effects of different types of urban growth on poverty in Indonesia," Working Papers in Economics 22/05, University of Waikato.
    2. Nelunika Priyashani & Nayomi Kankanamge & Tan Yigitcanlar, 2023. "Multisource Open Geospatial Big Data Fusion: Application of the Method to Demarcate Urban Agglomeration Footprints," Land, MDPI, vol. 12(2), pages 1-23, February.
    3. Luong Vinh Quoc Duy & Damien Cassells, 2022. "Agglomeration and innovation effort: A longitudinal study on small and medium manufacturing enterprises in Vietnam," Review of Development Economics, Wiley Blackwell, vol. 26(3), pages 1252-1268, August.

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    More about this item

    Keywords

    agglomeration economies; innovation; knowledge spillovers;
    All these keywords.

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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