The Impacts of Local Innovation and Innovative Spillovers on Employment and Population Growth in the U.S. Midwest

The objective of this paper is to estimate the impact of regional innovation on employ-ment and population growth in the U.S. Midwest. A measure of effective local innovation is created by fitting a first-order spatial autoregressive model to create a measure of regional innovation using patents. In the second stage, employment and population growth are explained as a function of effective innovation plus other growth related characteristics using a spatial error model. Using a spatial bootstrap routine to infer parameter significance, we find local innovative activity is positively associated with employment growth during the period 1990-2005, although rural and agriculturally dependent counties remain at a disadvantage. Population growth is also positively associated with effective innovation, although to a lesser degree.