Abstract

We analyze how the spatial concentration of economic activity affects innovation among firms in Ghana. We use the 2014 census of all establishments to map economic activity at a precise geographic level and the responses to a detailed survey of more than 5000 firms to capture measures of innovation and firm-level characteristics. We find a strong positive effect of the overall density of economic activity on innovation (urbanization economies) but a negative effect of the density of employment in an establishment’s sector (localization economies). Several questions in the survey allow us to address the issue of endogeneity and shed some light on the mechanisms. We control for many firm characteristics and confirm our results on a subsample of establishments declaring that their location is that of their founder’s origin, i.e. firms with a plausibly exogenous geographic location. We find that firms in regions with denser economic activity report less problems to access funding and knowledge, while the presence of firms in the same sector is associated with more uncertainty about the gains from innovating. 

Funding

This work was supported by the Fonds Wetenschappelijk Onderzoek – Vlaanderen (FWO) and the Fonds de la Recherche Scientifique – FNRS under EOS Project No. 30784531 “Winners and losers from globalization and market integration”