New Zealand has long been struggling to achieve higher rates of innovation and productivity growth. In spite of the pro-market reforms in the 1980s, we're still performing poorly on this front. Some of us have consequently become suspicious that there maybe a lurking cause of the problem that's difficult for any government policy to overcome. A forthcoming article, called "The Effect of High-Tech Clusters on the Productivity of Top Inventors", in the American Economic Review, may identify such a root cause. Here's the abstract:
"The high-tech sector is concentrated in a small number of cities. The 10 largest clusters in Computer Science, Semiconductors and Biology account for 69%, 77% and 59% of all US inventors, respectively. Using longitudinal data on 109,846 inventors, I find that geographical agglomeration results in significant productivity gains. When an inventor moves to a city with a large cluster of inventors in the same field, she experiences a sizable increase in the number and quality of patents produced. The presence of significant productivity externalities implies that the agglomeration of inventors generates large gains in the aggregate amount of innovation produced in the US".
In other words, creative, happening people often prefer to live near other creative, happening people in cities so as to physically meet up, get mentally stimulated & feed off each other's ideas, which makes the group even more creative & more happening. Is NZ just too far away, too sparsely populated & too small to get this sort of dynamic going?