The researchers appeal to a labour market matching model to argue that in dense urban areas, workers are more selective in their matches and are therefore more productive.

They argue that the inventive output of cities is explained in part by the productivity of worker interactions within firms.

With the emergence of endogenous growth theory in the 1980s, externalities associated with knowledge spillovers have played a prominent role in thinking about the sustained economic growth of nations.

A number of studies attempt to document the existence and significance of localized knowledge spillovers. Many of these rely on a “blackbox” model, applying an economy-wide knowledge production function to spatial data.

Some recent work has explored the relationship between city size, productivity, and inventive potential, but the relationship between employment density and invention remains largely unexamined.

The research team explicitly examined the role of employment density on the rate of innovation across metropolitan areas. They used the average rate of patenting per capita—what we call patent intensity—in a metropolitan area as a measure of innovations in these areas.

The researchers have found that, all else equal, patent intensity (patents per capita) is 20 percent higher in a metropolitan area with an employment density (jobs per square mile) twice that of another metropolitan area. Since local employment density doubles nearly four times across our sample, the implied gains in inventive output are substantial.

In addition, they found evidence of an optimal employment density, i.e., one that maximizes patent intensity, of about 2,150 jobs per square mile-roughly the level of Baltimore or Philadelphia. They also found that, all else equal, a city with a more competitive market structure, or one that is not too large (a population less than 1 million) will have a higher patent intensity.

These findings confirm the widely held view that the nation's densest locations play an important role in creating the flow of ideas that generate innovation and growth.

Federal Reserve Bank of Philadelphia
Robert Hunt (Federal Reserve Bank of Philadelphia - Research Department), tel. +1 2155743806

//

01/04/2005

Gerald Carlino, Satyajit Chatterjee and Robert Hunt

research

Urban Policy > Economy knowledge & employment > Urban economy

Competitiveness