Firm dynamics in urban neighbourhoods and innovation: A microgeographic analysis

Abstract

What happens to firms’ innovation activities when new firms enter or leave their urban neighbourhood? We empirically explore the role of knowledge spillovers through firm dynamics using firm-level panel data from Berlin. The results indicate that an increase in firm activities in the neighbourhood through entries and influx positively relates to incumbents’ innovation activities. This finding is restricted to diversity externalities which work on a very small microgeographic scale, vanishing already after a quarter of a kilometre. For specialisation externalities through firm dynamics, we cannot find a link to innovation in incumbents.