From Agglomeration to Breakthrough Innovation: The Role of Firm Clustering

ABSTRACT

Breakthrough innovation (BI) is vital for overcoming technological barriers and enhancing economic resilience. Firm clustering (FC) may shape innovation by improving firms' access to and use of external knowledge. Although many studies have examined clustering effects at the city and industry levels, evidence at the firm level remains limited. Using data from the Chinese Industrial Enterprise Database combined with geocoded information, this study investigates the impact of FC on BI. The results show that FC significantly promotes BI, though the effect attenuates with geographic distance and clustering in adjacent regions can inhibit local BI. Mechanism analysis indicates that FC functions by improving the information environment and facilitating knowledge spillovers. Heterogeneity analysis further shows stronger effects in smaller firms, industries with rapid technological change, regions with better connectivity, and more diversified clustering environments. These findings deepen our understanding of clustering economies and provide policy insights for advancing regional innovation.