Marshall meets Bartik: Revisiting the mysteries of the trade

TL;DR

This paper uncovers how top inventor inflows causally boost local patent productivity, revealing the influence of spatial economic factors and tax differences on inventive activity distribution.

Contribution

It combines Marshall's idea-generating process with Bartik instruments to identify the causal impact of inventor inflows on local innovation productivity.

Findings

Local productivity gains extend beyond organizational boundaries.

Spatial distribution of inventive activity is affected by state tax differences.

Knowledge in a spatial economy has a partially nonexcludable nature.

Abstract

We identify a causal effect of top inventor inflows on the patent productivity of local inventors by combining the idea-generating process described by Marshall (1890) with the Bartik (1991) instruments involving the state taxes and commuting zone characteristics of the United States. We find that local productivity gains go beyond organizational boundaries and co-inventor relationships, which implies the partially nonexcludable good nature of knowledge in a spatial economy and pertains to the mysteries of the trade in the air. Our counterfactual experiment suggests that the spatial distribution of inventive activity is substantially distorted by the presence of state tax differences.