RIETI Report February 2016

Making agglomeration ‘metabolised’ for innovation

Innovation is an important driver of economic growth, and its quality rather than quantity is more critical for achieving global competitiveness. Although innovative outcomes rest on individual research and development efforts, special attention is given to the agglomeration economy, which is expected to foster innovation through active knowledge spillovers. In the February issue of the RIETI Report, we present the column "Making agglomeration 'metabolised' for innovation" by Faculty Fellow Nobuaki Hamaguchi and Fellow Keisuke Kondo, and which was originally published on our partner site, VoxEU.org.

Hamaguchi et al. first link the similarity of the account of migration to the metabolism of the human body, which is the basis for a sound mind and ideas in a sound body. Accordingly, a metabolized agglomeration supports innovation. They then empirically investigate whether interregional knowledge turnover has a positive impact on the quality of innovation, and show that by making agglomeration metabolized, the quality of innovation is increased. Finally, Hamaguchi et al. end with an important message for innovation policy: mutual cooperation is needed between urban and rural policymakers to facilitate interregional migration without burden, which will make the innovation system sustainable in the long run.

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Making agglomeration ‘metabolised’ for innovation

HAMAGUCHI NobuakiFaculty Fellow, RIETI

KONDO KeisukeFellow, RIETI

Innovation is an important driver of economic growth. In particular, to acquire global competitiveness, the quality of innovation matters more than the quantity. Although innovative outcomes rest on individual efforts in research and development in firms and scientific organisations, economic research has also paid special attention to the agglomeration economy, which is expected to foster innovation through active knowledge spillovers (e.g. Carlino and Kerr 2015).

It is more likely that high-quality innovations are born in cities. The large number of specialised people in cities is not the only reason for such advantage—the greater diversity of knowledge also matters. It is often pointed out that proximity to a greater number of people facilitates face-to-face communication and fosters innovation. However, as analysed by Berliant and Fujita (2012), repeated interactions increase common knowledge and reduce knowledge diversity across workers, which limits opportunities for learning fresh ideas from each other. In fact, Huber (2012) indicates that technological knowledge spillover effects within the Cambridge Information Technology Cluster are very weak. In that sense, the effect of agglomeration on innovation is not sustainable just because an industrial cluster is established.

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