Impact of Employment Agglomeration on Patented Innovation in U.S. Manufacturing Industries from 1986 to 2008

Abstract

This paper examines impact of employment agglomeration in fifteen U.S. manufacturing industries on their innovation activities measured by patent count. A count data model is employed in regressing patent count on employment agglomeration measures, measure of scale, and some control variables. Measures of employment agglomeration and market concentration are found to have negative impacts on innovation in U.S. manufacturing industries. Two agglomeration proxies -Gini index and Ellison-Glaeser index have a negative influence on U.S. patented innovation for the study period. This result implies that the external benefit of spatial agglomeration of similar firms has waned down. The impact of market concentration is also found to be a negative factor for innovation. This result implies that firms with larger plant size are less innovative than those with smaller plant size. Impact of ‘share of workers with post graduate degrees’ on innovation was found to be a positive but statistically not significant factor for innovation. The ‘goods pooling’ determinant displayed negative influence on innovation. These results are mostly consistent across fifteen manufacturing subsectors. Rising energy cost is found to be one of the most significant deterrents of innovation whereas, ethnic diversity is found to be a significant facilitator of it. Results of this research lend support in favor of regional economic development policies that promote coagglomeration of various interdependent and complementary industries and small scale industries, and supports ethnic diversity to spur innovation in U.S. manufacturing industries.