Understanding the Inputs into Innovation: Do Cities Substitute for Internal Firm Resources?

23 Pages Posted: 3 May 2006

See all articles by Chris Forman

Chris Forman

Cornell University - Dyson School of Applied Economics and Management; Georgia Institute of Technology - Scheller College of Business

Avi Goldfarb

University of Toronto - Rotman School of Management

Shane M. Greenstein

Harvard University - Technology & Operations Management Unit; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2007

Abstract

We examine whether there is a tradeoff between employing internal (firm) resources and purchased external (local) resources in process innovation. We draw on a rich data set of Internet investments by 86,879 U.S. establishments to examine decisions to invest in advanced Internet technology. We show that the marginal contribution of internal resources is greater outside of a major urban area than inside one. Agglomeration is less important for firms with highly capable IT workers. When firms invest in innovative processes they act as if resources available in cities are partial substitutes for both establishment-level and firm-level internal resources.

Keywords: innovation, agglomeration, localization of substitution, internal and external resources

JEL Classification: R30, O33, L86

Suggested Citation

Forman, Chris and Goldfarb, Avi and Greenstein, Shane M., Understanding the Inputs into Innovation: Do Cities Substitute for Internal Firm Resources? (January 2007). Available at SSRN: https://ssrn.com/abstract=898696 or http://dx.doi.org/10.2139/ssrn.898696

Chris Forman

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Avi Goldfarb (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-946-8604 (Phone)
416-978-5433 (Fax)

Shane M. Greenstein

Harvard University - Technology & Operations Management Unit ( email )

Boston, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
188
Abstract Views
2,027
rank
158,111
PlumX Metrics