The Location of Industrial Innovation: Does Manufacturing Matter?

62 Pages Posted: 15 Mar 2013

See all articles by Isabel Tecu

Isabel Tecu

Charles River Associates (CRA)

Date Written: March 1, 2013


What explains the location of industrial innovation Economists have traditionally attempted to answer this question by studying firm-external knowledge spillovers. This paper shows that firm-internal linkages between production and R&D play an equally important role. I estimate an R&D location choice model that predicts patents by a firm in a location from R&D productivity and costs. Focusing on large R&D-performing firms in the chemical industry, an average-sized plant raises the firm’s R&D productivity in the metropolitan area by about 2.5 times. The elasticity of R&D productivity with respect to the firm’s production workers is almost as large as the elasticity with respect to total patents in the MSA, while proximity to academic R&D has no significant effect on R&D productivity in this sample. Other manufacturing industries exhibit similar results. My results cast doubt on the frequently-held view that a country can divest itself of manufacturing and specialize ininnovation alone.

Suggested Citation

Tecu, Isabel, The Location of Industrial Innovation: Does Manufacturing Matter? (March 1, 2013). US Census Bureau Center for Economic Studies Paper No. CES-WP-13-09, Available at SSRN: or

Isabel Tecu (Contact Author)

Charles River Associates (CRA) ( email )

1201 F. St. NW
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Washington, DC 20004
United States

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