Thursday, July 18, 2019

Why do innovative "clusters" form?

Interview with Economist Enrico Moretti suggest three factors that lead to manufacturing agglomeration are much stronger for firms engaged in innovation:

The first one is the existence of knowledge spillovers, also known as human capital spillovers: the fact that our human capital depends not only on where we go to school and how much schooling we get, but also on the people who surround us and from whom we learn. 
The second one is the matching advantage offered by thick labor markets. ... For example, if you are a biotech engineer specialized in, say, biofuel and you work in Silicon Valley, where at any moment in time there are a thousand biotech firms looking for biotech engineers, you are more likely to find the one that studies biofuels ... A better match ... results in higher productivity. 
The third channel is the thickness of the market for specialized services. Again, if you are in an area where there are many other firms like yours and they all need a very specialized type of vendor, you are more likely to find it in an area where there's a big agglomeration of firms in the same sector. 
All three factors exist in manufacturing, of course. But they are much stronger for firms and workers that engage in innovation.
In computer science, the top 10 cities account for 70 percent of all the innovation, as measured by patents. For semiconductors, it's 79 percent. For biology and chemistry, it's 59 percent.

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