towns far from urban centers. Figure 2 shows the geographic distributions of the natural cities with WBES firms. India alone contributes 8,100 firms, or 37% of the total sample, which were distributed across 207 natural cities.

Finally, an international ranking of universities and academic disciplines or majors is used to examine the relationship between firms’ propensity to undertake innovative activities and the presence of high quality universities and underlying academic disciplines. Specifically, the list of top 500 universities in Asia from the recent QS Asia University Rankings (QS 2019a) publication are mapped to natural cities.<sup>16</sup> Of the 500 top Asian universities, 248 are mapped into 99 natural cities. A dummy indicating the presence of top Asian university is set to 1 for these cities and 0 for the rest.

Unfortunately, the QS rankings of top Asian universities does not provide information on their majors and which ones contributed to their high ranking. To get a sense of the role that different majors might play in any linkages between universities and firms’ innovation, information from the QS ranking of universities around the world across five broad areas of study (QS World University Rankings by Subject; QS 2019b) is used.<sup>17</sup> The five areas are arts and humanities, engineering, life sciences, natural sciences, and social sciences and management. This global ranking is used to create dummies for the presence in our cities of universities with a top (globally) ranked major across the five areas. If the city has one or more universities ranked within the top 500 in a major study area, the corresponding dummy is equal to 1.

As may be expected, having a university with a top ranked major globally makes it very likely that a university is also be in the list of top Asian universities. Indeed, with the exception of eight Indian universities located in 6 natural cities, all other Asian universities included in the list of universities with a top major(s) globally are also in the list of top Asian universities. On the flip side, there are 171 top Asian universities without any major in the global top 500 majors.

# **2.3. Summary Statistics**

Table 1 reports the sample summary statistics of firm-level and city-level variables used in the study. Around 36% of the surveyed firms reported that they had introduced new or improved products or services in the past 3 years; 21% introduced products that were also new for the firm’s main market. The proportion goes up to 50% for new or improved processes, and 24% for any expenditure on R&D. Overall, 56% of firms carried out at least one of the three innovation related activities.

Following the literature, firms that operated for fewer than 10 years are defined as young firms (Reyes, Robert, and Xu 2017); those that had 50 or fewer permanent employees as small firms (Beck, Demirgüç-Kunt, and Maksimovic 2005; Reyes et al. 2017); and those that had 10% or more foreign ownership as FDI firms.<sup>18</sup> About 21% of firms across the whole sample were

> 16 QS stands for Quacquarelli Symonds, a British company that analyzes higher education institutions around the world.

> 17  The detailed list of subjects included in each major category is accessible at the QS website.

> 18 The literature often follows the International Monetary Fund’s standard definition of FDI, i.e., a firm is treated as having FDI if at least 10% of the firm’s ownership is foreign. For example, see Kinda (2010).

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