The Geography of Innovative Firms
Firms conducting R&D across multiple local markets account for most U.S. innovation. We study how their geographic scope affects growth and whether it is socially optimal. We develop a spatial growth model with multi-market firms that generate local knowledge spillovers. In equilibrium, firms may expand into too few or too many markets, depending on the sensitivity of spillovers to their local footprint. We estimate the model using data on R&D locations, patents, and citations, and find that firms under-invest in geographic expansion. Through model counterfactuals, we show that welfare gains from policies promoting broader geographic expansion are higher than traditional R&D subsidies.
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Copy CitationCraig A. Chikis, Benny Kleinman, and Marta Prato, "The Geography of Innovative Firms," NBER Working Paper 34010 (2025), https://doi.org/10.3386/w34010.Download Citation
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Non-Technical Summaries
- Most US innovation stems from firms that operate R&D facilities in many local markets. IBM and Google are two prominent examples...
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