Agglomeration and innovation effort: A longitudinal study on small and medium manufacturing enterprises in Vietnam

Abstract

This paper analyzes agglomeration effects on innovation behavior by small and medium manufacturing enterprises in Vietnam. We use a novel data set of 1,520 small and medium enterprises from 2011 to 2015. We focus on the spatial concentration of economic activities that influence firms’ innovation outcomes. Moreover, we outline firms' and owners' characteristics as we examine the role of entrepreneurs and other covariates such as firm size, age, and the number of establishments in fostering their firm's innovation. Empirical results show the following: agglomeration contributes to the firms' innovation. Firms were less likely to innovate when they become larger in size, but microfirms were less innovative than others. Firms were found to be more innovative if they produce more than one product and operate in different cities or provinces. In contrast to the strong effects of agglomeration on firm innovation, firm-level characteristics, especially that of owners, exhibit a weaker or insignificant role.