10 December 2018:
10 December 2018
Most industries are spatially clustered and clustering is particularly strong in the high tech sector. In this paper I use longitudinal data on top patenters to estimate the productivity benefits enjoyed by scientists who locate in Silicon Valley-style clusters. As a measure of worker-specific productivity, I use the number of patents produced in a year. I find that when a scientist moves to a larger cluster, she experiences significant increases in the number of patents produced and the number of subsequent citations. The productivity increase follows the move, and there is no evidence of pre-trends. Using an instrumental variable based on the geographical structure of firms with laboratories in multiple cities, I estimate that the elasticity of number of patents with respect to cluster size is 0.04. I use my estimates to quantify the macro-economic benefits of clustering for the US as a whole. I find significant aggregate efficiency gains from clustering. In a counterfactual scenario where the quality of U.S. inventors is held constant and their geographical location is changed so that all cities have the same number of inventors, the overall number of patents in US would be significantly smaller. I conclude that while clustering of high tech industries may exacerbate earning inequality across U.S. communities; it is important for overall production of innovation in the US.
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