Empirical analyses of regional innovation and economic growth in the United States

Much of the innovation creation literature is focused on urban firms and areas or relies heavily on data based on these; less studied are rural firms or rural areas in this regard. The goal of this dissertation is to explore the drivers of rural-urban innovation gap and the link between regional innovation and economic growth and propose policies to mitigate regional innovation ecosystem deficiencies and impediments that contribute to the gap. In my first essay, I analyze heterogeneity in inventiveness across urban and rural counties is using a spatial autoregressive negative binomial regression model, considering spatial spillover effects, creative class population, industry characteristics, human capital, and other regional factors influencing innovation. Results indicate that drivers of invention, namely a college-educated labor force and diversity of high-tech industries are common across all counties types, but urban inventive advantage persists due to agglomeration economies, higher number of universities, and higher shares of high-tech firms, professional services and immigrants. Consistent with the creative class hypothesis, population share of college graduates in creative disciplines also positively contributes to inventive output in urban counties. However, the effects of spatial spillovers and mobile phone technology penetration are stronger for rural counties, suggesting that policies promoting rural centers of innovation, technological diversity, and communication infrastructure in rural counties could help mitigate the urban-rural innovation gap. My second essay explores the interdependence between regional innovation and economic growth by accounting for possible endogenous relationships among regional innovation, income growth, employment and population. It draws on data for 3,038 counties in the 48 contiguous states of the United States collected from several publicly available sources for 2009-13. Endogeneity tests using instrumental variable regressions show that regional innovation and economic growth have endogenous relationships. Considering the endogeneity and estimating the system of simultaneous equations for regional innovation and economic growth using three stage least squares (3SLS) method, I find that innovation belongs to system of regional growth. Further, reduced form estimates of the 3SLS results suggest that policies promoting regional clusters of high-tech firms and capitalizing on the knowledge potential of the immigrants are likely to reinforce both regional innovation rates and economic growth. My third essay analyzes the characteristics that potentially influence innovation creation across rural and urban firms employing a survey dataset from 2014 National Survey of Business Competitiveness combined with secondary data reflecting the regional business and innovative environments where these firms operate. The number of patent applications filed by these firms measures their innovation creation, and the paper employs a negative binomial regression estimation for analysis. The findings of this essay show that, after controlling for industry, county and state factors, rural and urban firms differ in their innovation creation characteristics and behaviors, suggesting that urban firms capitalize on their resources better than rural firms. Other major findings of the essay provide evidence that (i) for rural firms, the influence of university R&D is relevant to innovation creation, but their perception of university provided information is not significant and (ii) rural firms that are willing to try, but fail, in terms of innovation creation have a slight advantage over other rural firms less willing to take on the risk.