Why is Technological Innovation Locally Concentrated? A Theoretical Review

Abstract

In this paper, we provide a theoretical overview of the reasons behind the concentration of technological innovation in some areas. To do so, we first examine the issues of innovation as established by macroeconomic theories of growth then we discuss the incentives for its production according to market structures. Then, using an approach based on the economics and management of knowledge, we analyze the mechanisms and dynamics of the co-localization of innovative industries through the results of theoretical models of industrial organization. Specifically, we show that the localization of innovation is favored by the presence of knowledge externalities, especially of a tacit nature, and by the sharing of indivisible costs (e.g., technology platforms, clean rooms, road networks, etc.). It is also explained by strategic gains associated with R&D cooperation, such as informational incentives linked to the local ecosystem and the improved performance of technological agreements between firms belonging to the same epistemic community and located within an innovation cluster.