The Role of Two Agglomeration Economies in the Production of Innovation: A Comparison between Localization Economies and Urbanization Economies

Little agglomeration research is directly associated with innovation production. Therefore this study compares two aspects of agglomeration economies to determine a dominant force in innovating. Urbanization economies proves to be important because cities are a space for new ideas, information, and learning facilities through residential amenities for R&D and foreign-born workers; better business conditions; and an effective cumulative learning than are localization economies. Big firms tend to decentralize functions beyond the localized areas, or develop vertical integration where innovation depends more on primate cities than a localized area. Small-and-medium-sized firms are found to be more competitive than co-operative in a localized industry.