This paper draws on matched data from the Business Structure Database (BSD) and the Community Innovation Survey (CIS) to examine the impact of city-region characteristics on firm-level innovation and growth. We find substantial evidence in production sectors of spillovers from regional innovative inputs to firm-level innovation performance which then feeds through onto firm growth in employment and sales. In production sectors the positive effects of city-region measures of innovative inputs and external knowledge sourcing activities on firm-level innovation suggest that the quality and relevance of localised interactions between firms and employees in their city-regions is enhanced by proximity to a relatively high proportion of innovative and outward-looking firms in their own and related sectors. However, no similar city-region level impacts are found for firms in knowledge intensive services or Other Services. We speculate that the lack of evidence of such effects in knowledge-intensive services in particular reflects a tendency for firms and employees in these sectors to interact with other firms and employees on a wider geographic scale than is denoted by city-regions as they are defined in this study.
In production sectors we find a positive relationship between firm innovation performance and a summary measure of socio-economic and labour market conditions (derived from indicators of skill levels, employment rates and the annual rate of growth in the working-age population). No such impact of city-regional skills and labour market conditions is found in service sectors but the innovation performance of firms in Other Services is restricted by regional skill shortages as is also the case in production sectors.
These results suggest that estimates of the impact of regional effects on firm growth are sensitive to both the choice of sectors under investigation and the choice of geographical entity under consideration.