Are local milieus the key to innovation performance?

This study investigates how local milieus foster innovation success in firms. We complement the common practice of linking firm performance indicators to regional characteristics with survey evidence on the perceived importance of locational factors. While the former approach assumes that location characteristics affect all firms in the same way, the survey allows us to model how firms judge the attractiveness of locations using a heterogeneous set of criteria. It turns out that the availability of highly skilled labor and the proximity to suppliers matter for firms' innovation performance. Interestingly, location factors obtained from the survey provide a more accurate explanation of how local milieus facilitate innovation.