How does industrial agglomeration affect regional innovation? A spatial econometric analysis

Abstract

This study empirically investigates the direct and indirect (spillover) effects of three types of industrial agglomeration with different cognitive distances, namely, industrial specialization, industrial related variety, and industrial unrelated variety, on regional innovation. Accordingly, we applied the concepts of related and unrelated variety and used spatial econometric analysis. Based on panel data of 283 Chinese cities from 2004 to 2016, the empirical results reveal that both industrial specialization and industrial related variety significantly improve regional innovation and produce positive spatial spillover effects on the surrounding regions. However, industrial unrelated variety has a significant negative impact on regional innovation and produces a negative spatial spillover effect on the surrounding regions. Moreover, the direct and indirect effects of the three types of industrial agglomeration on regional innovation between China's coastal and inland cities. The findings have important theoretical and policy implications.