Urban Agglomeration and Firm Innovation: Evidence from Asia

41 Pages Posted: 21 Jul 2020

See all articles by Liming Chen

Liming Chen

Asian Development Bank

Rana Hasan

Asian Development Bank; University of Maryland - Department of Economics

Yi Jiang

Asian Development Bank

Date Written: July 10, 2020

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.

Keywords: agglomeration economies, innovation, knowledge spillovers

JEL Classification: O30, R11, O10

Suggested Citation

Chen, Liming and Hasan, Rana and Jiang, Yi, Urban Agglomeration and Firm Innovation: Evidence from Asia (July 10, 2020). Asian Development Bank Economics Working Paper Series No. 616, Available at SSRN: https://ssrn.com/abstract=3656821 or http://dx.doi.org/10.2139/ssrn.3656821

Liming Chen (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Rana Hasan

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
808-944-7590 (Phone)
808-944-7399 (Fax)

Yi Jiang

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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