URBAN AGGLOMERATION ECONOMIES AND INNOVATION: A CASE OF TAIWANESE HIGH-TECH INDUSTRY

Agglomeration economies, which are divided into urbanization economies and localization economies turn to be the most essential reason for existence and innovation of modern cities. In particular, relative industrial output is chosen as localization economies to avoid multicollinearity and according to the concept of location quotient. This paper applies the two-stage process to evaluate urban agglomeration economies of high-tech industry in Taiwan. Data Envelopment Analysis (DEA) is first used to compute urban production efficiency and then agglomeration effects are estimated by Tobin censored regression method. The empirical results indicate that localization economies are far more important for generating localized innovation than urbanization economies.