Latent innovation in local economies

• Published in: Research policy Vol. 49; no. 2; p. 103909
• Main Authors: Goetz, Stephan J., Han, Yicheol
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.03.2020
• Subjects: economic development; employment; human capital; income; Input-output table; Latent innovation; Local economic growth; research policy; Input-output table; R12; R11; Local economic growth; C82; O30; Latent innovation
• ISSN: 0048-7333; 1873-7625
• DOI: 10.1016/j.respol.2019.103909

•Innovation driven by diversity and creativity is a key determinant of economic growth.•Conventional measures of innovation reflect research inputs and outputs such as R&D spending, employment of scientists and engineers, or patents.•We seek to measure unconventional or latent innovation in terms of inter-industry transactions as well as spatial proximity.•Innovation occurs in all industries, but also in more regions than is commonly believed to be the case or reported in public statistics. We propose a measure of latent innovation in local economies based on spillovers among industries in terms of inter-industry sales and purchases as well as spatial proximity. The proposed measure captures innovation that is not reflected in typical NSF-based statistics such as patents, R&D spending, or science and engineering workers. When the results are mapped for the U.S., regions that one would expect to be highly innovative also show up as such. To determine whether this measure helps to explain economic growth beyond traditional factors such as human capital and agglomeration, and conventional measures of innovation, we estimate simple regression models with income and employment growth as dependent variables. The proposed innovation measure is statistically significant even after we control for rival causes of growth. We suggest that our measure is preferable to conventional innovation indicators for understanding where in the U.S. innovation, more broadly defined, is occurring.