Location, Location, Location: Institutions and Systems in the Geography of Innovation

The rate of innovation and technical change is important to an economy’s rate of growth. More than strictly an academic interest, differences in knowledge creation, diffusion, and use have implications for international competitiveness, standards of living, and quality of life. We have, however, a limited understanding of the sources of technical progress and the reasons that innovation varies over time and across space. New methods of modeling imperfect competition and increasing returns have placed the persistence of agglomeration economies at the heart of the analysis. Within the recent empirical literature there is an appreciation for the locational context and the diversity of the landscape that condition economic activity. The concept of location is now defined as a geographic unit over which interaction and communication are facilitated, search intensity is increased, and, in general, task coordination is eased. In addition, knowledge is not easily contained, and geography provides one means to define knowledge spillovers. For these reasons, the generation of innovation may be enhanced in certain locations, and, as a result, these areas benefit from higher rates of technological advance and economic growth.