Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/38699 
Year of Publication: 
2006
Series/Report no.: 
CSIO Working Paper No. 0079
Publisher: 
Northwestern University, Center for the Study of Industrial Organization (CSIO), Evanston, IL
Abstract: 
We examine whether there is a tradeoff between employing internal (firm) resources and purchased external (local) resources in process innovation. We draw on a rich data set of Internet investments by 86,879 U.S. establishments to examine decisions to invest in advanced Internet technology. We find evidence of localization of substitution. In particular, we show that the marginal contribution of internal resources is greater outside of a major urban area than inside one. Agglomeration is therefore less important for highly capable firms. When firms invest in innovative processes they act as if resources available in cities are partial substitutes for both establishment-level and firm-level internal resources.
JEL: 
R30
O33
L86
Document Type: 
Working Paper

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