The regional environment and a firm's innovative performance: A plea for a multilevel interactionist approach

Following the recent critical debate on the role of the firm versus that of the region, this article contends that for a true test of the importance of the role of the region for a firm's innovative performance firm-specific heterogeneity needs to be minimized. Empirical studies have tended to deduce that the region matters from the macrophenomenon of regional clusters of economic activity. This deduction has led to an ecological fallacy, in which global phenomena or data aggregates that are actual representations of lower-level phenomena cannot be generalized to those lower levels. This article argues that if researchers want to analyze how a firm's environment affects its performance, they need to include firm-level strategy and structure. As an empirical illustration of this argument, the article presents a test - controlling for a number of firm-specific factors - of whether regional characteristics like the intensity of regional research and development (R&D), the number of R&D workers in the region, and the presence of a research institute are significantly related to a firm's ability to produce innovations. The findings suggest that the firm-specific drivers of innovation are more important than is a firm's regional environment. The article concludes that a renewed focus on the main actors and their interrelationships is needed, particularly those that involve the exchange of knowledge, to assess the extent to which such interactions are carried out within bounded territories.