Firm innovation in developing countries: Effects of urban agglomeration and global value chain integration

In this article, we investigate the effect of urban agglomeration and global value chain (GVC) integration on firm innovation in developing countries, and distinguish the creation versus adoption of innovation. Our analysis draws on evidence from more than 10,000 locally owned manufacturing plants in Africa and Asia. The results provide two key insights. First, larger urban agglomerations may benefit from the adoption of innovation but not necessarily its creation. Second, greater backward integration into GVCs may substitute for the benefits of locating in larger urban agglomerations, particularly for adoptive innovation. We discuss implications for theory and practice.