Neighbourhood related diversity, human capital and firm innovation

In this paper the importance of neighbourhood related diversity and firm human capital for firms' propensity to innovate is tested. Neighbourhood diversity is treated as a source of localized knowledge spillovers, that is, Jacobs' externalities, where diversity is measured in terms of industries and employee education. The results show that firms in metropolitan regions benefit from related industry diversity while service sector firms in rural regions are more innovative in neighbourhoods with more related diversity in education. Firm characteristics such as education and skills among the employees provide to be strong determinants of firm innovativeness, especially for firms outside metropolitan regions.