The Dependence of Innovativeness on the Local Firm Population—An Empirical Study of German Patents

Local clusters and the co-location of firms are repeatedly related to a high level of innovativeness in the literature. The underlying argument is that firms that are co-located with other firms of the same industry undertake more innovation than “lonely” firms because of spillovers, local labour markets and cooperations. These arguments are tested here for four industries in Germany. To this end, four different hypotheses about the impact of co-location on the innovativeness of firms are formulated and empirically compared. The results show that the innovativeness of firms indeed depends on the existence of other firms in the same region. However, the relationship between co-location and innovation output depends on the industry studied.