From creativity to innovativeness: micro evidence from Italy

In this paper I assess the existence, and the magnitude, of technological externalities in the form of creativity spillovers that affect individual firms' innovative intensity. Relying on a large sample of Italian manufacturing firms, I first estimate a knowledge production function; from this, I extract the residuals, which represent the unexplained part of the actual observed share of innovative sales, namely 'innovativeness'. Then, I regress such a measure of firm innovativeness on a set of occupation-based, as well as density-based, indicators of creativity at the NUTS3 level, while controlling for firm localization, size and industry. I also control for endogeneity and non-linearity by estimating a two-stage least squares model and a generalized additive model respectively. My estimates show that: (i) there is a positive and highly statistically significant effect of creativity on innovativeness; (ii) the effect of creativity on actual innovative sales is weak, whereas I find a strong positive effect played by internal R&D labour; (iii) occupation-based measures of creativity outperform education-based measures of human capital; (iv) when controlling for the education content of jobs, firms' innovativeness is affected more by the local availability of non-graduated creative workers than of graduated ones; (v) rather, a higher local availability of graduated creative workers affects the invention intensity of a city; (vi) the relationship between firm innovativeness and the local density of creative people is U-shaped, so that proximity-based knowledge externalities emerge only after a certain density threshold is reached, this occurring typically in larger urban areas, typically hosting design and service-based creative industries.