Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

Abstract: A longstanding research tradition assumes that endogenous technological development increases regional productivity. It has been assumed that measures of regional patenting activity or human capital are an adequate way to capture the endogenous creation of new ideas that result in productivity improvements. This process has been conceived as occurring in two stages. First, an invention or innovation is generated, and then it is developed and commercialized to create benefits for the individual or firm owning the idea. Typically these steps are combined into a single model of the “invention in/productivity out” variety. Using data on Gross Metropolitan Product per worker and on inventors, educational attainment, and creative workers (together with other important socio-economic controls), we unpack the model back to the two-step process and use a SEM modeling framework to investigate the relationships among inventive activity and potential inventors, regional technology levels, and regional productivity outcomes. Our results show almost no significant direct relationship between invention and productivity, except through technology. Clearly, the simplification of the “invention in/productivity out” model does not hold, which supports other work that questions the use of patents and patenting related measures as meaningful innovation inputs to processes that generate regional productivity and productivity gains. We also find that the most effective measure of regional inventive capacity, in terms of its effect on technology, productivity, and productivity growth is the share of the workforce engaged in creative activities.

Keywords: Innovation; Productivity; Regional Technology; Patents; Human Capital; Creative Class

JEL-codes: C31; O10; O31; O47; R11; Z10

40 pages, January 20, 2012

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