Agglomeration and Innovation: Evidence from European Metropolitan Areas

Abstract

This paper gives new evidence on the positive relationship between innovation and agglomeration, using a relatively unused dataset covering the vast majority of urban agglomerations of Europe. Our results show that, all else are equal, patent intensity is about 20 to 22 percent higher in a metropolitan area that is twice denser than another one. On the other hand, we go further than previous studies and differentiate between the patents based on their quality. We find that the agglomeration effect is higher for breakthrough innovations (the most highly cited patents), which means that agglomeration has higher impact on more qualified inventions. We also find evidence of a congestion effect. Finally, quite interestingly, we find a decreasing impact of agglomeration over time.