Are firms in clusters really more innovative?

This paper examines empirically whether firms located in strong industrial clusters are more innovative than firms located outside these regions. The study performs a firm-level analysis for two countries: Italy and the United Kingdom. European patent data for the period 1990-98 are used as indicator of firms' innovative activity, and are related to employment in the region where the firms are located, and other cluster-specific and firm-specific variables. The main result of the paper is that clustering alone is not conducive to higher innovative performance. Whereas location in a cluster densely populated by other innovative firms positively affects the likelihood of innovating, quite strong disadvantages seem to arise from the presence of non-innovative firms in a firm's own industrial sector. Regarding the impact of other industrial sectors, preliminary results seem to indicate, in the case of Italy, that a strong presence of firms in other related industries spurs innovative performance.Clusters, Innovation, Knowledge, Agglomeration Economies,