Improving Locally While Competing Globally: Network Effects on Innovation Performance in Cities

ABSTRACT The impact of local and global networks on innovation has been extensively studied. However, existing literature has not explored whether these effects result from territories gradually improving their networks, or competing with each other through their networks. This paper aims to address this gap by examining innovation networks in Latin American cities. Using patent data from the USPTO, we construct local networks connecting actors within cities and a global network linking different cities in different countries. We estimate the effects of networks on innovation using panel data regressions. To discern whether these effects result from cities' improvements or competition, the models follow the within‐between approach. Our findings indicate that cities benefit from improvements in their local network, regardless of whether this network is worse or better than that of other territories. This is not the case in the global network, where cities compete with each other by gaining better access to resources flowing through the network. These findings hold important research and policy implications, especially for developing countries where relative backwardness, weak local networks, and limited participation in global networks may hinder territories' ability to compete with more developed counterparts.