Patent Activity in Metropolitan Areas
Grant C. Black[(]
Abstract
The creation and flow of knowledge underlying innovation arguably occurs most effectively in urban areas. Yet, the clustering of innovation is usually studied at the state level. This paper considers the role of the local technological infrastructure in patenting across U.S. metropolitan areas. Four industries are separately examined to explore inter-industry differences. The empirical findings indicate that knowledge spillovers and agglomerative economies emanating from the technological infrastructure generally lead to greater patent activity. These effects vary somewhat across industries and differentially impact the likelihood of patenting across all metropolitan areas versus the rate of patenting in areas with patent activity.
Key Words: Patents, Knowledge Spillovers, Geographic Clustering, Negative Binomial Hurdle Model
JEL Classifications: R12, O31
1. Introduction
The clustering of innovative activity is usually studied at the state level. While the state as a unit of observation allows for an examination of how knowledge spillovers and agglomerative economies affect regional innovation, the substantial diversity of activity that exists within individual states cannot be captured at the state level. Yet, the creation and transfer of knowledge, as well as access to other resources, arguably best takes place in smaller geographic areas, such as cities (Lucas, 1993). If knowledge is sticky, as von Hippel (1994) contends, so that the cost of transmitting knowledge rises with distance, firms locate near sources of knowledge to reduce costs. Firms, therefore, have an incentive to cluster in urban areas that facilitate the flow of ideas between individuals and firms (Glaeser, 2000; Lucas, 1998). This clustering of knowledge can stimulate innovation within these areas, while other cities—even within the same state—without such clustering may see little innovative activity.
This paper explores the distribution of patent activity in the high-tech sector across U.S. metropolitan areas during the 1990s. To the best of our knowledge, only one other study (Ó hUallacháin, 1999) examines patent activity at the metropolitan area level although not by industry. This paper is the first to explore inter-industry differences in clustering patterns and patenting by separately examining four industries that largely comprise the high-tech sector. This study specifically examines the role of the local technological infrastructure in patenting, using recent patent data compiled at the metropolitan level and expanding Ó hUallacháin’s analysis that focused largely on the effect of area size and omitted inter-industry differences. It refines earlier studies of patents at the state level (Jaffe, 1986, 1989; Feldman, 1994) and updates previous studies of innovative activity in metropolitan areas during the 1980s (Anselin et al, 1997, 2000a, 2000b; Feldman and Audrestch, 1999; Jaffe et al, 1993; Varga, 1998).
Section 2 discusses the geographic concentration of patent activity. The third section discusses the relationship between the local technological infrastructure and patenting and describes the empirical methodology and data used for this analysis. Section 4 reports the empirical findings about the impact of the local technological infrastructure on patenting activity in the United States during the period 1990-95, examining its effect first on the likelihood of patent activity occurring across all metropolitan areas and then on the rate of patenting in metropolitan areas with patent activity. The paper concludes with a summary of the empirical findings and implications related to the impact of the local technological infrastructure on patent activity.
2. Spatial Distribution of Patents
The skewed distribution of innovative activity is well documented. Regardless of the measure, innovative activity in the United States is predominately concentrated on the east and west coasts with a few pockets of activity scattered in the interior. Feldman (1994) provides a detailed breakdown by state of several measures of innovation, including R&D expenditures and innovation counts, which shows a propensity for innovation to concentrate in certain regions. Black (2001) reports that Phase II awards from the Small Business Innovation Research (SBIR) Program in the United States are highly skewed across states and metropolitan areas, with approximately one in two awards being given to firms in Boston, San Francisco, Los Angeles, Washington, DC, and New York.
The distribution of patents in the United States is no exception. For instance, more than nine out of ten patents have inventors residing in metropolitan areas (Ó hUallacháin, 1999). Figure 1 depicts the distribution of utility patents by state during 1990-95.[1] Although concentration on the east and west coasts is less pronounced for patents than for R&D expenditures or SBIR awards, California, New York and New Jersey rank in the top five states in terms of patents granted. The central states of Texas (third) and Illinois (fifth) join the ranks of the top five states, and Michigan is a close sixth. Figure 1 also shows that the distribution of patent activity is skewed to relatively few states. Over 316,000 utility patents were granted in the United States in 1990-95. Ten states received more than 10,000 patents, accounting for almost two-thirds of all utility patents in the United States. The large majority of states made up the remaining third. Thirty-one states had less than 5,000 patents, and almost half of these states received less than 1,000 patents.
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The skewed distribution of patents is even more striking at the metropolitan level than at the state level. Of 273 metropolitan areas in the United States in 1990-95, 225 received less than 1,000 patents. Only 14 metro areas received more than 5,000 patents, with half of these receiving over 10,000 patents (U.S. Patent and Trademark Office, 1998). Table 1 lists the top five metropolitan areas in 1990-95 for number of utility patents granted. All but one (Chicago) of the top five metropolitan areas are in either California or the Northeast: New York, San Francisco, Los Angeles, Chicago, and Boston. While California has the greatest number of statewide patents, the New York metropolitan area has the most patents of any metropolitan area; San Francisco and Los Angeles are ranked second and third, respectively. Almost one in three patents are granted in one of the top five metropolitan areas.
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The concentration of patent activity at the metropolitan level remains evident when patents are disaggregated by industry. Figures 2 through 5 show the concentration of patents across metropolitan areas in 1990-95 for four two-digit industries that broadly encompass the high-tech sector: chemicals and allied products (SIC 28), industrial machinery (SIC 35), electronics and electrical equipment (SIC 36), and scientific instruments (SIC 38). The heaviest concentrations in all four industries occur in California, the northeast, and the manufacturing belt. Far less patenting takes place in metropolitan areas in the southern, central, and mountain regions, though sporadic pockets of activity exist in several cities. For chemicals, patenting is strongest in areas with a significant presence of chemical or biotechnology firms, such as New York, San Francisco, and Philadelphia. Machinery has more widely dispersed areas with significant patent activity, including Detroit and Chicago. While instruments is widely dispersed at low levels of patenting, most patenting in instruments is heavily concentrated in Rochester, New York, and Los Angeles.
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Table 2 lists the top five metropolitan areas receiving utility patents in 1990-95 by industry. For the four industries combined, New York ranks first, followed by San Francisco, Boston, Los Angeles, and Chicago. Four of the top five metropolitan areas are found in coastal regions—two in California and two in the Northeast. New York is the leading metropolitan area for patents across the four industries, being ranked first in chemicals and machinery and second in electronics and instruments. San Francisco and Boston are also ranked among the top metropolitan areas across all four industries. Chicago is the only metropolitan area ranked in three of the four industries that is not located on the west or east coast. The only other non-coastal city is Detroit, ranked third in machinery due to the automobile industry. While Table 1 shows that less than a third of all utility patents are concentrated in the top five metropolitan areas, Table 2 indicates that this concentration is stronger for “high-tech” patents and varies across industries. Over 37 percent of high-tech patents are in New York, San Francisco, Boston, Los Angeles, or Chicago. Patent activity in chemicals and instruments is considerably more concentrated than in machinery. The top five metropolitan areas capture one-third of patents in machinery but over 47 percent in chemicals and 44 percent in instruments.
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3. Local Technological Infrastructure and Patenting
The local technological infrastructure is typically thought to be comprised of the institutions, organizations, firms, and individuals that interact and through this interaction influence innovative activity (Carlsson and Stankiewwicz, 1991). This includes academic and research institutions, creative firms, skilled labor, and other sources of inputs necessary to the innovation process. Much research has focused on particular elements of the technological infrastructure (such as concentrations of labor or R&D)[2], while far less has attempted to focus on the broader infrastructure itself. The literature that has explored the infrastructure as a whole generally describes the state of the infrastructure in innovative areas, such as Silicon Valley, in an effort to hypothesize about the relationship between the technological infrastructure and innovative activity (Dorfman, 1983; Saxenian, 1985, 1996; Scott, 1988; Smilor et al., 1988).
Following Feldman (1994), this study employs a knowledge production function to estimate the relationship between patenting and the local technological infrastructure. In the knowledge production function, some knowledge output is a function of a set of knowledge and other inputs (Griliches, 1979). To model the relationship between patenting and the local technological infrastructure, we define the knowledge production function as:
(1)
where PAT is a measure of patent activity; R&DLABS measures industrial R&D activity; UNIV measures industry-related academic knowledge; EMPCON is industrial concentration; EMPSIC73 is the concentration of relevant business services; POPDEN is population density; i indexes industry; and s indexes the spatial unit of observation (metropolitan areas). This model covers a range of knowledge and agglomeration sources that typify the local technological infrastructure. It includes private and public research institutions, concentrations of industrial labor and services, and population density as an indicator of informal networking and area size. The model, therefore, captures the role of knowledge spillovers and agglomeration effects from these sources in patenting.
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Table 3 defines the variables used to estimate the impact of the local technological infrastructure on metropolitan patenting. Two variables are created to measure patent activity: PATDUMi and PATENTi. PATDUMi is a zero-one dummy variable that captures whether or not a metropolitan area experienced any patent activity in industry i during the period 1990-95. PATENTi, on the other hand, indicates the rate of patenting in areas with a positive level of patent activity in industry i. Patent data at the metropolitan and industry levels come from the MSA_ORI and PATSIC files available from the U.S. Patent and Trademark Office (USPTO). The MSA_ORI file reports the metropolitan area associated with every utility patent granted during 1990-99 that has a first-named inventor residing in the United States. A metropolitan area is assigned to a patent based on the address of the first-named inventor. The PATSIC file links every utility patent granted between 1963 and 1999 to the Standard Industrial Classification (SIC). Utility patents are those classified as inventions, which excludes plant patents, design patents, statutory invention registration documents, and defensive publications. The sample includes patents granted between 1990 and 1995 and assigned to U.S. nongovernmental organizations and individuals to isolate patent activity in the private sector. The sample is also restricted to patents assigned to only one metropolitan area, eliminating patents with multiple locational designations.
The Technology Assessment and Forecasting Branch of the USPTO created a concordance linking USPTO patent classes and SIC codes in the mid-1970s. The concordance links patent classes to 41 SIC industries. Patents were linked to the industries expected to either produce the patented invention or use the invention in production (Griliches, 1990). The methodology used for the concordance has been criticized because of double counting due to multiple SIC links and arbitrary links between patent subclasses and SIC codes (Scherer, 1982a; Soete, 1983). However, few alternative methods have emerged that yield data in the scale of the PATSIC file.[3] To avoid inconsistencies related to double counting, this analysis restricts the sample to patents having a unique two-digit industrial classification.
Industrial R&D expenditures, commonly used as a measure of R&D activity, are unavailable at the metropolitan level due to data suppression. Instead, R&DLABS is used as a proxy for knowledge generated by industrial R&D. The number of R&D labs within a metropolitan area was collected from the annual Directory of American Research and Technology, the only source of metropolitan R&D data.
Two variables were constructed to measure the availability of local knowledge emanating from the academic sector: UNIVDUM and UNIVR&D. The broadest measure, UNIVDUM, is a zero-one dummy variable that indicates the presence of a university in a metropolitan area classified as a Carnegie Research I/II or Doctorate I/II institution. This subset of all academic institutions is responsible for the bulk of research in the United States, making these institutions the predominant source of academic knowledge within a region (National Science Board, 2000).
UNIVR&D expands this indication of access, focusing on knowledge produced at research universities that relates to an industry as measured by academic R&D expenditures at Research I/II and Doctorate I/II institutions matched to an industry. Knowledge contributed by other types of academic institutions likely plays a much smaller role in the knowledge spillover process. Moreover, Research I/II and Doctorate I/II institutions generate the highly trained science and engineering workforce through graduate programs, a vital source of tacit knowledge for firms hiring their graduates. Given the high correlation between R&D expenditures and conferred degrees in science and engineering fields, these institutions’ R&D expenditures in science and engineering fields proxy the knowledge embodied in human capital as well as in research.
The National Science Foundation’s WebCASPAR provided institutional level data on academic R&D expenditures by department for Carnegie Research I/II and Doctorate I/II institutions. Field-specific academic R&D expenditures were linked to a relevant industry and aggregated based on academic field classifications from the National Science Foundation’s Survey of Research and Development Expenditures at Universities and Colleges.