Innovation and the Growth of Cities
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Innovation and the Growth of Cities

Zoltán J. Ács

This new and original book by Zoltan Acs explores the relationship between industrial innovation and economic growth at the regional level, and reaches conclusions as to why some regions grow but others decline. While the analysis draws on industrial organization, labor economics, regional science, geography and entrepreneurship, the book focuses on innovation and the growth of cities by the use of endogenous growth theory.
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Chapter 2: Knowledge, Innovation and Firm Size

Zoltán J. Ács


INTRODUCTION Just as the economy has been besieged by a wave of technological change that has left virtually no sector of the economy untouched during the last decade, scientific understanding of the innovative process – that is, the manner by which firms innovate, and the impact such technological change has in turn on enterprises and markets – has also undergone a revolution, which, if somewhat quieter, has been no less fundamental. Well into the 1970s, a conventional wisdom about the nature of technological change generally pervaded the economics literature. This conventional wisdom had been shaped largely by scholars such as Joseph Schumpeter and John Kenneth Galbraith. At the heart of this conventional wisdom was the belief that monolithic enterprises exploiting market power were the driving engine of innovative activity. Schumpeter had declared the debate closed, with his proclamation in 1950 [1942]) that, ‘What we have got to accept is that (the large-scale establishment) has come to be the most powerful engine of progress’. Galbraith (1956: 86) echoed Schumpeter’s sentiment, ‘There is no more pleasant fiction than that technological change is the product of the matchless ingenuity of the small man forced by competition to employ his wits to better his neighbor. Unhappily, it is a fiction.’ While this conventional wisdom about the singular role played by large enterprises with market power prevailed in the economics literature during the first three decades subsequent to the close of the Second World War, more recently there has been a wave of new studies challenging this...

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