Universities, Agglomeration, and Regional Innovation

Urban agglomeration is an important correlate to regional innovation. Large population centers pool knowledge workers and facilitate spillovers essential to innovative activity. And large populations provide more cost-effective locations for non-labor inputs to innovation, including local infrastructure that may facilitate innovative activity. However, university locations may also agglomerate these innovative inputs, even absent the agglomerative effects of large populations. Regional policymakers may find it useful to differentiate between various correlates to innovation. This paper exploits the collinearity of universities and population with regional human capital to apportion the relationship between these regional correlates of innovation into human-capital related and non-human-capital related channels. We identify a correlation between universities and regional innovation that reflects a relationship between innovation and regional human capital correlated with university presence. None of this relationship can be apportioned to factors correlated with university presence and uncorrelated with local human capital. A key methodological contribution of this paper is the analytical framework, which can be extended to a larger number of aggregate factors and causal channels.