This paper explores the reasons why cities are often major centres of innovation, even in some less favoured regions and countries. It starts with an anatomization of the dominant factors that explain why key less favoured settings developed 'new economy' clusters through institutional interaction with Silicon Valley. ne analysis concludes that public research resources and private commercialization funding are central, supported by a wide array of private but few public innovation support services. It then examines a number of cases from cities in less favoured regions and countries where innovation has occurred. The conclusions are that the research-venture capital model is present and explains innovation in each case. However, in some cases public 17 9 venture capital has to substitute for private due to market failure, or a phenomenon termed 'Silicon Valley Offshore' has been induced. Cities are innovative where they concentrate the desired scientific and investment knowledge capabilities.
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