Identifying the Effects of Entry on Local Innovation

Abstract

I identify the entry effects of top innovative firms on incumbent innovation. I exploit the inter-temporal variation in patenting activities of local inventors in chosen commuting zones that attracted the firm headquarters and in runner-up commuting zones that were finalists of location choice. After the entry of top innovative firms, local inventors achieve better patenting outcomes. They apply 6.7% more patents, gain 16.8% more top patents, and receive 11.6% more citations. In addition, I investigate the potential mechanisms underlying local innovation spillovers. Citations evidence suggests the existence of knowledge diffusion. Entry effects are stronger among local inventors who are technologically or socially closer to the entering firm, after controlling for innovation incentives and labor mobility. Overall, my results indicate that knowledge spillovers help explain the entry effects.

Keywords: Entry, Innovation, Productivity, Knowledge Spillover, Network Centrality