R&D Strategy, Metropolitan Externalities and Productivity

This paper studies the influence of metropolitan externalities on productivity for different types of long run R&D engagement based on information from the Community Innovation Survey. We apply a dynamic general method of moments model to a panel of manufacturing and service firms with different locations in Sweden, classified as a metropolitan region, the largest metropolitan region, a metropolitan city, the largest metropolitan city and a non-metropolitan area. This analysis generates three distinct results. First, the productivity premium associated with persistent R&D is close to 8 percent in non-metro locations and about 14 percent in the largest city. Second, a firm without any R&D engagement does not benefit at all from the external milieu in metro areas. Third, no productivity premium is associated with occasional R&D effort regardless of the firm’s location.