Do Small Businesses Improve Innovativeness More than Large Ones in Clusters?

Authors: Li Fang*, University of Maryland - College Park
Topics: Economic Geography, Urban and Regional Planning
Keywords: industrial cluster, innovation, small businesses
Session Type: Paper
Day: 4/12/2018
Start / End Time: 10:00 AM / 11:40 AM
Room: Bacchus, Marriott, River Tower Elevators, 4th Floor
Presentation File: No File Uploaded


This paper quantifies the effect of industrial clusters on the innovation of small and medium-sized enterprises. Due to the endogeneity of firm size and the imprecise measurement for the spatial scale of clusters, prior studies fail to deliver a reliable estimate for this effect. This paper solves endogeneity using the size of land parcels in 1973 as an instrument and mitigates the sample attrition bias with the Lee bounds. It also searches for the spatial scale at which clusters improve innovation in small and medium-size enterprises by the largest magnitude. Using establishment-level data for the state of Maryland and patent application data from 2004 to 2013, this paper finds that industrial clusters at the spatial scale one mile in radius increase citation-weighted patent filings by 6% in small and medium-sized enterprises, compared to that in large enterprises. Due to the fact that small and medium-sized enterprises account for the majority of the establishment population and are major job creators but sustain greater hurdles to finance, promoting clusters makes a promising option for practitioners to encourage overall innovative activities and boost local economic development.

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