Firm and regional economic outcomes associated with a new,broad measure of business innovation

ABSTRACT

Most innovation-oriented studies use measures such as patent activity or research expenditures, likely ignoring the role of more home-grown upgrades or opportunity-recognizing activity common in businesses across the U.S. This study develops a broader ‘innovation index’ using a new survey of businesses that provides a wide lens for capturing innovative practices. The index is used in a series of regressions testing the relationship between innovation and both firm and regional-level economic outcomes. Results from the firm-level regressions show that the innovation index has a positive and significant relationship with wages paid to employees and product market growth. The regional analysis demonstrates that innovation is correlated with several regional economic variables, including median household income, and that spatial spillovers from innovation exist in some instances.