Which Firms Innovate in British Manufacturing and Service Sectors?

There has been considerable interest in what determines whether a firm innovates.  Whilst firm level characteristics are undoubtedly important, less evidence is available on the impact that local infrastructure has on their firm level propensity to innovate.  We use a combination of firm and regional measures to explore the extent to which the external environment affects the probability that a firm will innovate, differentiating between high and low skilled manufacturing and service sectors.  We find that in high skilled manufacturing, knowledge and technology transfer may contribute to a firms propensity to innovate. In services, we find that our results are less consistent with agglomeration effects on innovation.