DO ONLY BIG CITIES INNOVATE?
TECHNOLOGICAL MATURITY AND THE LOCATION OF INNOVATION

          Local policymakers looking to boost the economic performance of their communities are often eager to encourage innovation that can, in turn, increase productivity growth and raise both wages and standards of living. Yet, many studies reinforce the common perception that innovation is more likely to occur in heavily-populated areas. Is a large population a prerequisite to innovation?

          Michael Orlando, a senior economist at the Federal Reserve Bank of Kansas City and Michael Verba, a research associate, explore the issue in “Do Only Big Cities Innovate? Technological Maturity and the Location of Innovation.” The article is featured in the second quarter edition of the Economic Review.

          The authors find the common perception about the location of innovation is not always true. Although innovation in new technological fields predominates in more populous regions, where specialized goods and services used for innovation are more readily available, less populated areas are able to compete for innovative activity in maturing technologies. For example, the authors find that an increasing share of innovations related to technology for manipulating DNA originate in smaller cities as this technology matures.

          Although overall rates of patent activity are higher in populated areas, the authors find that policymakers in less populated areas seeking to spur innovation might consider initiatives that mitigate distances from larger communities, including high-quality communication and transportation infrastructure allowing innovators to collaborate with distant colleagues.

          “These technologies may represent critical needs for innovators in mature technological fields who would like to take advantage of the low congestion and high natural amenity benefits of many smaller cities,” the authors write.

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