From Average to the Frontier: a Nonparametric Frontier Approach to the Analysis of Externalities and Regional Innovation Performance

Although a rich literature has emerged analyzing the impact of localization, urbanization, and Jacobs externalities on regional innovativeness, the findings are still contradictory. Traditional studies differ mainly in the employed data but rely on similar empirical approaches. This paper argues in favor of using in this context production frontier approaches instead of the commonly employed production function approaches. In addition, a nonparametric frontier approach is used to empirically examine the influence of the externalities on regions' innovativeness. For four different industries positive effect of localization and urbanization externalities are found. In contrast, with the exception of the transport equipment industry, Jacobs externalities seem to be of minor importance. I greatly thank Thomas Brenner for helpful comments and suggestions, and Cinzia Daraio for her assistance in the implementation of the conditional order-m analysis.