# **Notes**

1 A recent version of special economic zones is represented by “charter cities,” an idea originally promoted by economist Paul Romer. Hondura <mark>s is seeking to develop a new major economic cluster from scratch. The idea of a charter city is an extension of the idea of special economic zones. But unlike the typical special economic zone, the political and legal institutions in Romer’s charter cities are not those of the host country, which is often corrupt and inefficient. They are instead the institutions of some external, well-functioning country.</mark> 2 This section is based largely on Moretti (2012).

3 To obtain a precise measure of the differences among metropolitan areas, I used data on 15.4 million workers ages 25–60 living in 306 metropolitan areas from the American Community Survey, collected every year by the U.S. Census Bureau The Census Bureau defines metropolitan areas to include not just the political boundaries of a city but also its neighboring communities, to the extent that commuting patterns suggest that they are part of the same local labor market. Metropolitan areas are thus economically integrated regions that include places where people live and work. The New York metro area, for example, includes New York City and its suburbs in Long Island, New Jersey, Connecticut, and Westchester County. I focus on metro areas with employment of greater than 200,000. (In this paper, I use the terms city and metropolitan area interchangeably.) 4 Of course, the relationship with innovation is not perfect. Stamford has a thriving financial sector but not many high-tech startups.

5 Baumgardner 1988.

6 Wheller 2010; Bleakly and Lin 2010.

7 An important example of specialized service providers for innovative companies is venture capital. People have remarked for decades that one of the secrets of Silicon Valley’s success is its deep and articulated venture capital base. But what does proximity have to do with funding? Why, in a world of fast communication and cheap plane tickets, should venture capitalists on Sand Hill Road favor startups near them? The answer is that venture capitalists do not simply write a check and then disappear. An increasingly important part of their job involves monitoring, nurturing, and mentoring new businesses. This is why location matters. Nurturing and monitoring are clearly easier if the startup is nearby. In the end, geographical proximity to venture capitalists still matters. Skype and cell phones have not changed this simple fact. This is one reason that the world of high tech is and will remain geographically concentrated.

8 Harbison and Myers 1965.

9 The outlier in the top right corner is Stamford. Because 305 other cities are in the graph, the relationship is not driven by this outlier.

10 Moretti 2004b.

11 See, for example, Glaeser (1994a,b, 1999) and Gaspar and Glaeser (1998).

12 Azoulay, Zivin, and Wang 2011.

13 Moretti 2012.

14 None of this should be an argument for complacency for successful cities. The forces of agglomeration are no guarantee that cities will keep their lead in innovation forever. Detroit was the Silicon Valley of its day, and its successful industrial cluster has largely disappeared.

15 This section is based largely on Moretti (2012).

16 Moretti 2012.

17 Kline and Moretti 2012.

18 Moretti 2012.

19 This section is based largely on Moretti (2012).

20 Glaeser and Gottlieb 2008.

21 Moretti 2004a.

22 Moretti 2004a.

23 Moretti 2011.

24 Glaeser, Gourkyo, and Saks 2005.

25 Moretti 2012.

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