Spatial sorting of innovative firms and heterogeneous effects of agglomeration on innovation in Germany

  • Annekatrin Niebuhr
  • Jan Cornelius PetersEmail author
  • Alex Schmidke


We examine the effects of agglomeration, differentiating between urbanization and localization economies, on four distinct types of innovation in manufacturing and services. Furthermore, estimating multilevel panel regression models, we investigate the sorting of highly innovative firms into dense urban and/or specialized regions by considering both observable and unobservable firm characteristics. The results indicate that spatial sorting is important. A large portion of the regional differences in firm innovation rates is due to firm characteristics. Estimates that ignore unobserved heterogeneity at the firm level still point to a positive and significant impact of localization economies on different types of innovation. However, once we include firm fixed effects and distinguish between manufacturing and services, only some weak indication for positive effects of localization on radical innovations of manufacturing firms remains. In addition, the probability to adopt an existing product by an manufacturing firm seems to be positively influenced by urbanization economies. For the service sector, in contrast, we find adverse effects of localization on different kinds of innovation and no important effect of urbanization.


Agglomeration economies Spatial sorting Firm innovation Localization Urbanization 

JEL Classification

D22 O31 R12 



We gratefully thank the guest editors Lara Agostini, Barbara Bigliardi, Federico Caviggioli, and Francesco Galati, two anonymous referees, Johannes Bröcker, Timo Mitze as well as participants at the 3rd Geography of Innovation Conference, Toulouse 2016 and the 56th ERSA Congress, Vienna 2016 for their helpful remarks and suggestions which substantially improved the paper. The usual disclaimer applies.


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Authors and Affiliations

  1. 1.IAB Nord, Regional Research Network of the Institute for Employment ResearchInstitute for Employment ResearchKielGermany
  2. 2.Empirical Labor Economics and Spatial Econometrics, Department of EconomicsChristian-Albrechts-Universität zu KielKielGermany
  3. 3.Institute of Rural StudiesJohann Heinrich von Thünen InstituteBraunschweigGermany

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