New Zealand’s patent output is horrible by OECD standards. On a per person basis, the OECD produces four times as many triadic patents (inventions that are patented in the big three economies: the US, Japan and Europe) as New Zealand. Finland produces nearly ten times as many. Our poor performance in patenting is one of the reasons we are near the bottom of our class in the World Economic Forum’s innovation rankings.
So what’s the problem? One explanation lies in economic geography, the study of how economics depends on location. In fact, economic geography suggests that the comparisons I’ve just made are not very meaningful. As economist Paul Krugman says ’… countries are not points and some pairs of countries are much closer than others … London and Paris are much closer to each other than New York and Chicago, or for that matter that Canada is essentially closer to the United States than it is to itself.’ To an economic geographer, the natural unit of economics is the city, not the country.
Many economic measures, including productivity, savings rates, and even the number of petrol stations per person, appear to be correlated with city size. Dave MarÃ©, a Wellington economist, has found that in New Zealand, the productivity of a company is correlated with the regional density of companies. In the US, the per capita patenting rate of a region also seems to be related to its population, with larger population centres having more patents per person.
How are New Zealand’s patents distributed? Using an OECD patent database (previously discussed here), I have plotted New Zealand’s PCT patents from 1978-2008 for each region against its population in 2008. The Auckland region has the most patents, the most people and the most patents per person. The dashed red line is a fit that assumes the number of patents per capita is uniform across the country. From the plot you can see that on average, New Zealanders produced one patent per 1000 people over this period, while Aucklanders produced one for every 750 people.
Are Aucklanders just smarter, or is economic geography at work here too? We’ll explore this in later posts.