Specialization, institutions and innovation within China's regional innovation systems

Drawing upon the insights from economic geography and regional innovation systems, this paper examines whether and how the agglomeration of industries influences their innovative outputs, with a focus on the importance of regional institutions in the Chinese context. Based on a dataset that covers 29 two-digit SIC manufacturing industries in 30 provincial-level Chinese regions in 2009, it found that specialization externalities within industries do exist in Chinese regions. These impacts are further moderated by regional institutional factors, suggesting that the benefits of localization economies are predicated on the development of institutions in regions. •The Marshall–Arrow–Romer specialization externalities within industries exist in Chinese regions.•The benefits of MAR externalities are moderated by the development of regional institutions.•The beneficial impacts of MAR externalities work on incremental and substantive innovations differently.