Recent research: Can regionally oriented innovation policies strengthen national competitiveness?

As policymakers consider how to invest limited dollars to stimulate R&D across the U.S. while other countries increase their investments, it’s important to examine whether newer regional policy approaches have the potential to increase national competitiveness versus traditional individual programs. For example, should programs such as EDA Tech Hubs and NSF Engines—both of which are designed to stimulate greater innovation results from existing, strengthened and new assets within more geographic areas across the country—be continued or even expanded? Would networked, regionally oriented innovation policies increase collaboration and accelerate economic growth?

A recent NBER working paper, "The Geography of Innovative Firms" by Craig A. Chikis, Benny Kleinman, and Marta Prato, may help answer these questions by examining the spatial distribution of innovation. They look at how the physical location and expansion of innovative firms contribute to a nation's innovative capacity and economic growth. Their model examines what they call "multi-market innovative firms," companies that conduct R&D across several different local geographical areas, and measures knowledge spillovers. That is, does innovation generated by one firm in a particular location benefit other nearby firms? The authors utilized detailed information on R&D facility locations, patent applications, and patent citation networks. Patent citations serve as an indicator of how knowledge flows between different inventions and, by extension, between different firms and locations. Their experimental design allowed them to assess the impact of a firm's spatial expansion on knowledge spillovers over time.

The authors find that when firms expand their R&D operations into new geographical markets, it leads to increased knowledge spillovers to other firms in those areas. They also find that U.S. innovative firms currently operate in fewer local markets than would be considered optimal, representing a missed opportunity for greater innovation and economic growth because firms are not sufficiently spreading their R&D activities. 

Based on these findings, the authors suggest policymakers should consider implementing strategies that encourage the spatial expansion of innovative firms. They emphasize the potential of policies that promote geographic diffusion of R&D to stimulate innovation and job creation in new regions, thereby contributing to more balanced economic development across the country. Strengthening the research and innovation capacity of more regions of the country, building on the public and private assets already in place may help attract innovation-intensive companies to expand the number of locations in which they work.

While not specifically discussed in this paper, both EDA Tech Hubs and NSF Engines are policies that promote geographic diffusion of R&D. Both programs explicitly aim to foster technological innovation and economic growth in regions across the United States, with a focus on expanding capabilities outside of traditional tech centers and communities that were historically ignored in past tech booms, including rural, industrial, and disadvantaged areas.

This page was prepared by SSTI using Federal funds under award ED22HDQ3070129 from the Economic Development Administration, U.S. Department of Commerce. The statements, findings, conclusions, and recommendations are those of the author(s) and do not necessarily reflect the views of the Economic Development Administration or the U.S. Department of Commerce.