Paper-Fabio e Jorge - Globelics2014 PDF

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Learning, Cooperation and Innovation in Industrial Agglomerations: evidences of the impacts of

territorial proximity in the innovative performance of the Brazilian Industry

Abstract: The paper analyzes the influence of learning processes, cooperation and innovation for two
groups of Brazilian industrial firms: those companies included in industrial agglomerations and those that
are not included in them. Based on an evolutionary approach the paper tries to develop an exploratory
analysis of the factors that influence patterns of learning, cooperative practices and innovative
performance in industrial agglomerations. Initially, a methodology to identify industrial agglomerations
based on secondary data is presented. Then, the impacts of cooperation and learning on the performance
of innovative firms included in those agglomerations are discussed, based on the construction of a set of
indicators extracted from Brazilian Industrial Surveys which are treated through econometric techniques.
Specifically, an ordered probit model is developed to assess these impacts in terms of the introduction of
product innovations. From the econometric models analyzed, it appears that the companies included in
industrial agglomerations develop processes of learning and cooperation that are more virtuous, when
compared with the rest of Brazilian industry, enabling them to obtain higher innovative gains.

Key-words: Industrial agglomerations; Learning and Innovation, Cooperation and Innovation

Introduction

The concept of industrial agglomerations has been increasingly used as an analytical tool by the
literature of Industrial Economics. In this literature, an evolutionary approach has pointed the importance
of connecting the characteristics of the knowledge generation and the identification of critical dimensions
of those agglomerations. It is generally assumed that the discussion about how this knowledge is
generated, appropriated, distributed and enhanced might contribute to understand how those
agglomerations work, allowing not only to differentiate them according to a greater or lesser degree of
complexity but also to evaluate their potential to evolve along a virtuous path of competence growth.
In an evolutionary perspective, a major feature of those agglomerations refers precisely to their
ability to operate as a mediator between the firm and the external environment, which increases the
capacity of absorbing knowledge potentially useful for the strengthening of efficiency, innovativeness and
competitiveness. Basically, these agglomerations might redefine the dichotomy between "internal" and
"external" sources of knowledge, acting as an intermediate instance which allows to "format" the
knowledge according to the requirements of the competitive process, providing relevant externalities,
stimulating the integration of competences and generating multiple spill-over effects. However, despite
the recognition of the learning process as a critical aspect of this dynamics - empirically illustrated by a
growing number of case studies there still a gap regarding cross-sector analyzes that enable the
identification and quantification of those gains at the firm-level, compared with firms not included in
industrial agglomerations.
This article tried to expand the understanding of the relationship between territorial proximity,
cooperation and innovation, based on an analytical framework that seeks to articulate the intensity of
learning and innovative processes to elements that emerge from territorial specificities. Specifically, the
analysis tries to identify the influence of learning processes, cooperation and innovation to Brazilian
industrial firms, which were divided into two distinct groups: firms inserted in territorial agglomerations
and firms territorially isolated.
The article is structured in six sections. The next section presents the conceptual framework that
underpins the study of the relationship between territorial proximity, learning and cooperation in
industrial agglomerations. The third section presents the methodological procedures adopted to identify
industrial agglomerations from secondary sources of information. The fourth section presents an overview
of the characteristics of the industrial agglomerations identified from those procedures. The fifth section
presents the methodology used to identify the impact of cooperation and learning to the innovative
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performance of firms inserted in industrial agglomerations, based on the construction and econometric
treatment of indicators extracted from Brazilian industrial surveys (PIA and PINTEC). The sixth section
presents the results of the econometric model (ordered probit) used to assess these impacts in terms of the
introduction of product innovations. The last section presents the main conclusions of the analysis.

2. Conceptual Framework

The concept of industrial agglomerations has been recurrently used as an analytical approach to
discuss aspects related to the territorial competitiveness by the modern literature of Industrial Economics
and Regional Economics. The basic assumption of those analyses is that industrial agglomerations might
provide positive externalities at the territorial level, increasing productive efficiency and creating a
suitable environment to the raise of innovativeness and competitiveness of the firms located in the
territory. Moreover, the interactions established between the firms inserted in those agglomerations might
also have a significant impact on the dynamics of territorial development of the localities, contributing to
the attraction of other economic activities. The use of this analytical category to discuss structural
conditions that affect firms competitiveness goes back to classical theoretical approaches, starting from
the works of Marshall (1890), Perroux (1955) and Myrdal (1957). These approaches have generated
important analytical developments in the field of the New Economic Geography (Krugman, 1991 and
1995), Structuralist Regional Economics (Storper, 1996 and 1997, Scott and Storper, 1986, Piore and
Sabel, 1984), Innovation Economics (Audretsch, 1995; Audretsch and Feldmam, 2004; Maillat, 1996 and
1998) and in the literature about modern Industrial Districts (Schmitz, 1997; Nadvi and Schmitz, 1994;
Musyck and Schmitz, 1995; Pyke, Becattini and Sengenberger, 1990). At the same time, the concept has
been incorporated in the policy guidelines of international development agencies (OECD, 2001 and 2007,
World Bank, 2009)
The concept of industrial agglomerations might also be articulated to the proliferation of empirical
studies developed from an evolutionary theoretical perspective. In this sense, some relevant attributes of
those agglomerations may be stressed: 1) Geographical proximity; 2) Sectoral specialization and intra-
sectoral division of work; 3) Close inter-firm collaboration; 4) Inter-firm competition essentially based on
innovation rather than on lower wages; 5) Social embeddedness that facilitates trust, reciprocity and
social sanction; 6) Different forms of state support. In a complementary approach, McCormick (1999)
and Basant (2002) argue that the emergence of industrial agglomerations can facilitate knowledge flows
through the following effects: 1) a Market Access effect related to due to the attraction of customers and
the associated knowledge; 2) a Labour Market Pooling effect due to specialized skills that becomes
concentrated, which facilitates learning and knowledge transfer; 3) a Intermediate Input effect due to the
emergence of specialized suppliers of inputs and services which enhance the dynamism of vertical
knowledge flows; 4) Technology Spillovers associated with the diffusion of knowledge that permits a
rapid flow of information/know-how among firms operating in proximity; 5) a Joint Action effect based
on cooperation practices and networking that facilitates knowledge circulation and integration.
Bell and Albu (1999) develop an analysis of the elements that strengthen the integration of
capabilities in the knowledge systems associated to those agglomerations, stressing the differences
between elements that increase knowledge-using capabilities and elements that increase knowledge-
changing capabilities. Concerning the first aspect, they mention, at the firm level, the passive experience
of production (learning by doing in production''), the active efforts to adopt and improve specific
technologies and the improved practices derived from trial and experimentation on specific tasks. At the
level of the agglomeration, they mention the mobility of skilled labor, the improvement of operational
skills and the know-how diffusion of specialized machinery or production-related services. Concerning
the knowledge-changing capabilities at the firm level, they mention the technological understanding
gained from investment efforts (learning by doing investment'') and the generic technological insights
gained from adapting and improving existing technologies (learning by changing''). At the level of the
agglomeration, this dimension involves collective practices in planning and technology management, as
well as collaboration in tests and experiments to adapt machinery or to develop product designs. The
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creative collaboration between firms and local technology-based institutions seems also to be very
important.
Expanding the evolutionary argument, the methodological framework argues that geographical
proximity is not enough for the achievement of collective learning processes and innovative dynamism. In
fact, this proximity might also be articulated with other elements, such as the institutional, cultural and
technological context, in order to foster the existence of an innovative system. According to this
perspective, the presence of multiple ties among local actors performs a critical role to strengthen
competence building processes in industrial agglomerations. The establishment of those ties may provide
the necessary conditions to promote localized learning processes and to consolidate innovative paths
based on incremental innovations. On the other hand, in order to avoid the danger of a geographical lock-
in related to the exhaustion of learning processes, the agglomerations might also retain capabilities to
break productive practices and to change technological paths (Cooke and Morgan, 1998). In this sense,
Christopherson, Michiel and Tyler (2010) argue that these processes could be related to a kind of
regional resilience, defined as the capacity of a territory to overcome short-term or long-term economic
adversity, which would be provided by a strong regional system of innovation (Clark et al., 2010;
Howells, 1999) and by the effective creation of a learning region (Archibugi and Lundvall, 2001).
The territorial proximity between agents inserted in a similar social, cultural and institutional
context enhances cooperative practices that reinforce learning gains (Johnson and Lundvall, 1994). Non-
economic factors, socially defined rules and local institutional conditions affect the interactions between
economic agents, generating incentives for cooperation and learning. In an evolutionary approach, the
concept of industrial agglomerations tries to articulate the static competitive advantages generated by the
spatial agglomeration with dynamic competitive advantages obtained through the strengthening of
learning practices and multiple forms of cooperation. In this perspective, positive externalities generated
by the process of spatial agglomeration mentioned in the original analysis of Marshall (1890) might
also be articulated to structural and institutional factors that stimulate collective actions oriented to the
improvement of local competences and to the strengthening of the innovative performance of local agents.
It is supposed that the systematic interchange of information and knowledge generates a process of
collective learning, which accelerates the diffusion of technological and organizational innovations. These
flows involve intangible assets and the circulation of tacit knowledge. Although innovations intentionally
developed in co-operation tends to occur only in more structured systems, there are a lot of possibilities to
improve the competitiveness of local productive systems due to informal mechanisms of learning. The
evidence also shows that the competences of the firms inserted in those agglomerations might be
upgraded based on the circulation of information and skilled workers. Another aspect that must be
stressed refers to the impacts of the interchange of information to the definition of industrial standards,
normalization procedures and quality control techniques.
In order to allow the integration of complex knowledge, particular importance might be attributed
to interactive learning mechanisms structured at the local level. This process tends to transcend the sphere
of the individual firm, involving continuous interaction between those firms and other institutions inserted
in local innovative systems. In this sense, learning-by-interaction becomes a critical aspect of industrial
agglomerations. Typically, interactions develop in the form of cooperative efforts, formal or informal.
Then, cooperation can be seen as a particular case of learning-by-interacting. Given the tacit character of
knowledge, innovation usually requires several forms of interaction among economic agents, who in turn
interact with technology-based and knowledge-based institutions. In this context, the technological
development of a firm becomes increasingly dependent on the capabilities of other firms, competitors,
clients and suppliers. In this sense, it is possible to differentiate horizontal cooperative links among firms
inserted in similar stages of the value chain and vertical cooperative links involving firms, suppliers,
customers and other agents and organizations. Among those organizations, it can be mentioned research
centers, technical schools, public institutions and private representative associations. All these agents
represent the complex institutional context in which cooperative links are built.

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3. Identification of productive agglomerations: instrumental criteria and general characteristics

The identification of industrial agglomerations is based on data collected from the Annual Report
of Social Information provided by the Brazilian Ministry of Labour and Employment (RAIS / MTE) for
the year 2005. These data cover formal workers registered, the number of establishments present in
different industrial sectors and the total amount of remuneration received by the employees. The
methodology also considers a spatial criterion to locate economic activities in the territory based on the
concept of homogeneous micro-regions, defined by IBGE, the Brazilian Institute of Economic Statistics.
The economic activities were distinguished according to a 3-digit Brazilian industrial classification,
which is compatible with the International Standard Industrial Classification (ISIC). Different groups of
economic activities were identified, in order to establish specific criteria for the identification of matched
pairs comprising those activities and the territorial concentration of the entrepreneurial activity.
Based on data extracted from RAIS, the existence of industrial agglomerations were evaluated
with the aid of a traditional tool applied to regional economic studies, based on the calculus of Locational
Indexes (QLs) that try to consider the relative weight of the indicator (number of employees, number of
establishments or amount of remuneration received) in each field of economic activity for the micro-
regions, when compared to the same weight for the whole country. For all 559 micro-regions and 111
economic activities, Locational Indexes (QLs) were calculated, considering the relative weight in terms of
total employment, number of establishments and amount of remuneration received. Additional criteria
were incorporated in the analysis, considering a minimum density of the number of establishments
located in each pair sector/micro-region, as well as a criterion related to the relevance of the employment
generated by the sector in the micro-region compared to the country as a whole. The criteria of density
and sectoral relevance were also adapted according to the type of economic activity, in terms of greater
or lesser spatial concentration of the employment
1
. Based on these criteria, industrial agglomeration were
identified for each one of the 111 economic activities, being distributed among the 559 micro-regions,
based on the criteria of "territorial relative specialization", "density" and "sectoral relevance", which are
also adapted to the particularities of different groups of economic activities, as shown in Table 1.

Table 1 - Criteria applied to the identification of industrial agglomerations as a function of the
degree of spatial concentration of economic activities
Types of industries /Criteria Applied
Relative Specialization Index
(QL)
Density Criterion Sectoral relevance criterion
Manufacturing sectors with High
Spatial Concentration
QL Employment > 1 and QL
Establishment > 1 and QL
Remuneration > 1
Minimum of 2
establishments
Minimum share of 1,5% to the
employments of the micro-
region in the whole country.
Manufacturing sectors with
Medium-High Spatial Concentration
Remuneration > 1
Minimum of 4
establishments
Manufacturing sectors with Medium
Remuneration > 1
Minimum of 6
establishments
Manufacturing sectors with
Medium-Low Spatial Concentration
Establishment > 1 and/or QL
Remuneration > 1
Minimum of 9
establishments
Manufacturing sectors with Low
Establishment > 1 and/or QL
Remuneration > 1
Minimum of 12
establishments

1
Five groups of economic activities were identified using a spatial concentration index (Herfindahl-Hirschman), with each
group being associated to a quintile in the ascending order of that index: 1) High Spatial Concentration; 2) Medium-High
Spatial Concentration; 3) Medium Spatial Concentration; 4) Medium-Low Spatial Concentration; 5) Low Spatial
Concentration.

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Table 2 highlights some characteristics related to the set of industrial agglomerations identified.
Based on the outlined procedures, 1.129 agglomerations were identified, representing an average of 10.2
agglomerations per sector of economic activity, defined from a 3-digit industrial classification. The
average degree of the Locational Index (QL) in terms of jobs reaches 12.78 for the industrial
agglomerations, indicating that the correspondent economic activities are representative and have a
significant degree of specialization, compared to the national territory. The total amount of jobs generated
by the industrial agglomerations reaches 2,2 million, equivalent to 33.23% of the employment in
manufacturing industries in the country. The weight of the employment generated by industrial
agglomerations corresponds to 2.65% of the employments generated in the micro-regions. The industrial
agglomerations comprise 65.147 establishments, which represent 20.05% of the manufacturing
establishments of the country. On average, each industrial agglomeration consists of 57 establishments,
which represent only 0.85% of the total establishments in the micro-region they are located. The data
related to remuneration - comprising salaries in minimum wages for December 2005 - indicate that the
remuneration generated by industrial agglomerations represent 33.75% of the remuneration generated by
the manufacturing sector in the country and 2.73% of the total remuneration generated in the micro-
regions. Establishments integrated to the industrial agglomerations tend to be small, comprising 34
employees and paying a remuneration equivalent to 3.9 times the minimum wage.
The criteria applied to the identification of industrial agglomerations seem to generate relevant
results, in the sense that, on average, 33% of the employment and remuneration and 20% of manufacture
establishments in the country were classified as belonging to those agglomerations. Based on the
observation that approximately another third of these variables refer to large metropolitan areas
2
, the rest
of the Brazilian industry comprising firms not included in industrial agglomerations - also concentrate
approximately another third of that total. This feature points to a balance in the Brazilian industrial
structure, in terms of the relative weight of industrial agglomerations, large industrial metropolitan areas
and relatively isolated firms not included in those agglomerations.

2
Six large metropolitan areas received differential treatment due to the fact that they have more than 150 thousand formal jobs
in the manufacturing sector: So Paulo, Campinas, Belo Horizonte, Rio de Janeiro, Curitiba and Porto Alegre. This differential
treatment might be justified due to the large size and huge diversification of its industrial structures, which distorts the criteria
used to identify industrial agglomerations. In this sense, firms located in the correspondent micro-regions can be considered
jointly, forming a group of large industrial metropolitan areas, which were not considered for the purpose of identification of
industrial agglomerations.
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Table 2 Industrial agglomerations: general characteristics in terms of employment,
establishments and remuneration (2005):
Values
Dimension Indicator
1th Quintile -
Sectors with
High Spatial
Concentration
2th Quintile -
Sectors with
Medium-High
Spatial
Concentration
3th Quintile -
Sectors with
Medium Spatial
Concentration
4th Quintile-
Baixa / Mdia
Concentrao
5th Quintile -
Baixa
Concentrao
Total
Agglomerations
N 84 170 184 239 452 1.129
% 7,44% 15,06% 16,30% 21,17% 40,04% 100,0%
Mean* 3,82 7,73 8,36 10,86 19,65 10,17
Employments
Locational Index QL** 42,46 12,19 10,58 8,83 10,46 12,78
N of employments 126,833 265,288 451,613 604,05 762,455 2.210.239
% 5,74% 12,00% 20,43% 27,33% 34,50% 100,0%
Mean** 1.509,92 1.560,52 2.454,42 2.527,41 1.686,85 1.957,70
% in Brazil* 43,74 34,47 29,08 27,52 31,43 33,23
% in Micro-region**** 1,66 1,23 2,56 2,54 3,10 2,50
Establishments
N of establishments 634 2,815 12,953 20,872 27,873 65.147
% 0,97% 4,32% 19,88% 32,04% 42,78% 100,0%
Mean** 7,55 16,56 70,40 87,33 61,67 57,70
% in Brazil* 21,11 17,90 21,14 19,69 22,78 20,55
% in Micro-region**** 0,15 0,16 0,83 0,86 1,25 0,85
Remuneration***
Amount of remuneration 1.358.954,28 1.557.194,71 1.932.309,67 1.732.334,44 2.140.171,06 8.720.964,16
% 15,58% 17,86% 22,16% 19,86% 24,54% 100,0%
Mean** 16.178,03 9.159,97 10.501,68 7.248,26 4.734,89 7.724,50
% in Brazil* 44,53 34,22 29,86 28,07 32,13 33,75
% in Micro-region**** 3,93 1,84 2,82 2,45 2,95 2,73
Notes: * Defined for each group of economic activity, considering a 3-digit industrial classification. ** Defined for each industrial agglomeration identified.
*** Defined in terms of Minimum Wages paid in December 2005. **** Defined as a share of the total employments, establishments or remunerations of the
micro-regions in which the agglomerations are located.
Source: data extracted from RAIS / MTE (2005)..

After identifying industrial agglomerations from the pairs of groups of economic activities and
micro-regions, the analysis tries to advance in a comparative analysis between the characteristics of the
firms inserted in industrial agglomerations and of those not inserted in this kind of structure. This analysis
is developed from a consolidated database, containing micro-data extracted from two Industrial Surveys
carried by IBGE for the year 2005: PIA (a general Annual Industrial Survey) and PINTEC (an Innovation
Survey structured from the general guidelines of the Oslo Manual). A comparative analysis between
industrial agglomerations and the rest of the Brazilian industry was carried out based on this database,
using data collected at the firm-level. For this purpose, after the identification of firms inserted in
industrial agglomerations (considering the superposition of criteria related to territorial and sectoral
specialization), a new instrumental variable was defined, which would takes the value of 1 for firms
inserted in those agglomerations and 0 if they not meet this criterion. Based on this procedure, the
analysis applies econometric instruments (a ordered probit model) in order to identify the specific
characteristics of the processes of learning, cooperation and innovation in firms inserted in industrial
agglomerations, vis--vis the firms that are not included in those agglomerations.

4. Learning, cooperation and innovation in industrial agglomerations: methodology and analytical
procedures

Based on the analytical framework of this study, we can postulate the hypothesis that the existence
of industrial agglomerations can generated dynamic comparative advantages. The benefits of
geographical proximity might be associated to tangible externalities on the production of goods and
services as well as to intangible externalities related to the increase in the stock of knowledge, provided
by interactive learning processes. This section identifies the characteristics of learning processes,
cooperation and innovative performance of firms, differentiating two control groups: companies inserted
in industrial agglomerations and companies not inserted in those agglomerations. To capture these
differences, a set of econometric models based on ordered Probit regressions was applied. First, the
analysis checks the impact of the processes of learning and cooperation in the introduction of product
innovations and then a second procedure tries to capture those impacts in the introduction of process
innovations.
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We have opted for the use of ordered probit models, believing that these models capture more
accurately the reality of the innovative processes in Brazilian industry. Similar analyzes have tended to
use conventional probit models applied to the database provide by PIA and PINTEC, in which the
dependent variables assume a dichotomous character. In these studies, the dependent variable takes the
value 1 for firms that have innovated and 0 for those that did not innovate
3
. However, one characteristic
of PINTEC is that most of the asked questions related to innovative efforts, learning strategies and
cooperation are applied only to firms that have introduced some kind of innovation in product and/or
processes. Therefore, to enable the application of the model, the studies usually restrict the dependent
variable, which would take the value 1 when the company introduced a new product in the domestic
and/or international market (in the case of product innovations), assuming a similar value when the
company introduced a new process for the sector (in the case of processes innovations); otherwise, the
dependent variable takes the value 0. According to those criteria, firms that introduced a new product
already existent on the market, or adopted a new process already existing in the sector, are not considered
innovative. This type of procedure creates serious distortions in the analysis, in face of some specificities
of a significant part of the innovative firms in the Brazilian industry.
From a total sample of 5.854 innovative companies surveyed by PINTEC, 2.505 introduced a new
product for the firm, but already existent on the market, and 4.042 introduced a new process for the firm,
but already existent in the sector. In contrast, 1.067 companies have introduced a new product for the
domestic or international market and 670 companies have introduced a new process for the sector. These
figures show that most of the introduction of innovations in the Brazilian industry has a characteristic of
being effectively imitation of new products and processes. Therefore, the ordered probit models permit to
capture these particularities enabling a better understanding of innovative processes in the Brazilian
industry. To capture these aspects, in the model proposed the dependent variable assumes three
categories: not innovate, innovate for the company and innovate for the market-sector. Because of this
feature two cutoffs will be considered.
The result obtained by the model will capture the impacts in terms of the marginal probability of a
particular event, considering the possibility of introducing "imitative" innovations or more "relevant"
innovations
4
. Specifically, three marginal probabilities related to each explanatory variable will be
evaluated: the first refers to the possibility of the firm does not innovate, the second to the possibility of
introduce a product/process new to the firm but already existent on the market/sector and the third
concerns the possibility of introduce a product/process effectively new to the market/sector.
The vector X of explanatory variables can be divided into two sets, individually stipulated for each
company of the sample. The first set refers to the variables that represent the main focus of the analysis,
comprising processes of learning and cooperation. The second set refers to control variables used in the
analysis
5
.
In the first set, eight variables (indicators) seek to quantify the processes of learning and
cooperation in which the firms were engaged. These indicators were derived from some asked questions
of PINTEC relating to: i) the importance attributed to different sources of information used between 2003
and 2005, for the development of products (goods or services) and/or processes which are technologically
new or substantially improved; ii) the importance attributed to different partners in the development of
cooperative activities. Therefore, these variables seek to transform qualitative attributes (the importance

3
See, for example, De Negri, et al.(2005).
4
"Imitative" innovations are conceived as the introduction of new processes and products for companies but already existents
on the market or sector. On the other hand, relevant innovations are conceived as the introduction of new products and new
processes that are effectively inexistent in the market and in the sector.
5
The introduction of control variables reflects the fact that the innovative performance of firms in the sample might also be
explained from a broader spectrum of variables that go beyond the limited set of variables that we intend to analyze. The
hypothesis related to the introduction of these variables assumes that there are other factors that might influence the innovative
performance of companies in addition to variables related to the processes of learning and cooperation.
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attributed to certain event) in quantitative attributes, finding a value between 0 and 1. Table 3 shows these
variables as well as the event captured by each indicator
6
.

Table 3 Indicators related to interactive processes, constructed from PINTEC/IBGE (2005)
according to the event/agent captured by the indicator
Indicator Event Agents
Internal Learning (INTLEARN)
Relevance of the agents as a source of
information
Department of R&D; Other departments.
Vertical Learning (VERTLEARN)
information
Suppliers of machinery, equipment, materials, components and
software, Customers or consumers.
Horizontal Learning
(HORIZLEARN)
information
Competitors; Consulting firms and independent consultants.
Learning with S&T institutions
(S&TLEARN)
information
Universities and research institutes, Centers for professional training
and technical assistance; Institutions dedicate to test, trial and
certification.
Other Sources of Learning
(OTHERLEARN)
information
Acquisition of licenses, patents and know how; Conferences, meetings
and publications, Fairs and exhibitions; Computerized information
networks.
Vertical cooperation (VERTCOOP)
Effective involvement in cooperative
practices with the agent.
Customers or consumers; Suppliers.
Horizontal cooperation (HORCOOP)
practices with the agent
Competitors; Consulting firms..
Cooperation with S&T institutions
(S&TCOOP)
practices with the agent
Universities and research institutes, Centers for professional training
and technical assistance.
Source: Own elaboration based on PINTEC / IBGE (2005).

The first indicator intends to capture the importance of interactions inside the firms, referring to
internal learning. Other indicators capture the characteristics of learning and cooperation processes
developed with external actors. The vertical learning and vertical cooperation indicators try to
capture the importance of the relations within the supply chains in which firms are embedded. Regarding
competitors and consulting firms the analysis try to consider how the firms interact horizontally with the
rest of the production structure, through the definition of two indicators horizontal learning and
horizontal cooperation. Indicators related to the S&T infrastructure try to capture the relevance
attributed by the firms to universities and research centers as a relevant source of information learning
with S&T institutions as well as the effective involvement in cooperation with them (cooperation with
S&T institutions). A final indicator captures the importance attributed to other sources of information
that contribute to the improvement of learning, for instance, licenses and patents, conferences and
meetings, etc. This set of variables constitutes the main focus of analysis, which intends to compare the
characteristics of these processes in the firms inserted in industrial agglomerations vis--vis those firms
that are not included in these agglomerations.
The second set of variables comprises control variables that seek to capture some structural
features of the firms that can influence their innovative performance. Two variables are related to firms
size: the Number of Employees (EMP) and the Net Sales Revenues (NETSALE) ". The hypothesis
that better-paid workers have greater incentives to contribute to innovative processes is captured in the
model through the variable Average Wage (AW). The existence of a direct relationship between the
growth in productivity and the innovative performance of firms is tested using two variables:
Productivity Value added per Employees (PRD) and Value added (VAD). The participation in
foreign trade and its effect on innovative performance are captured by two variables: Trade Balance
(Exports Imports) (TBE) and Flow of Foreign Trade (FFT). The use of these variables aims to
estimate the participation of the firms in international trade (both as an importer and exporter), as well as
their trade surpluses, which could encourage the obtainment of a higher innovative performance.

6
The indicators were calculated as follows:
k
n
I
k
l
l i
j i
=
=
1
,
,
, where
j i
I
,
corresponds to the indicator j (INTLEARN,
VETLEARN, HORIZLEARN, ...) to the firm i, j represents the set of events/agents that conforms each indicator; k = 1,2,...,n
corresponds to the number of events/agents grouped in each set j and,
l i
n
,
correspond to the level of relevance attributed by
the firm i to the event l (l j) according to the following codes: high importance = 1; medium importance = 0,66; low
importance = 0,33; no importance = 0. Each one of those indicators would vary within a range from 0 to 1.
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The relationship between firms innovative efforts and their innovative performance is tested by
five variables: (1) Employees in R&D activities (EMPR&D); (2) Spending on Innovative Activities /
Net Sales (SIA/NETSALE); (3) R&D Expenses / Spending on Innovative Activities (R&D/SIA); (4)
Spending on machinery and equipment / Spending on Innovative Activities (SME/SIA); (5)
Expenditures on Training and Competence Building / Spending on Innovative Activities (ETCB/SIA).
This set of variables was obtained based on information provided by micro-data from PIA and PINTEC
for the year 2005, which are individually collected by each firm in the sample.
Additionally, a variable was introduced with the aim of differentiating two groups of firms: firms
inserted in the industrial agglomerations previously identified and firms that are not inserted in them. This
"agglomeration dummy" variable takes the value 1 when the firm is included in any of the industrial
agglomerations and 0 if it is not. So, three groups of explanatory variables were defined in the model:
variables related to the processes of learning and cooperation, control variables and dummy
agglomeration variables.
The dependent variables would be related to the introduction of product innovation (INOVPROD),
being also based on data from PINTEC (2005). These variables assume the following intervals: i) 1 if
firm i introduced a new product for domestic and/or international market; ii) 0.5 if firm i introduced a new
product for the company but already existent on the market, iii) 0 if if firm i has not introduced product
innovation. Three ordered probit models were considered in the analysis, concerning the introduction of
product innovations. The parameters and were estimated by maximum likelihood procedure. All
prerequisites for the application of the ordered probit regression are met for these models. The errors are
not autocorrelated, there are no correlations with the explanatory variables and those errors have expected
values equal to zero. Multicollinearity is minimized for two reasons: the size of the sample and the
transformation of the explanatory variables in standardized variables with mean zero and standard
deviation equal to one (Hair et al, 2005; Johnson and Wichern, 1999). To prevent the heteroscedasticity in
this type of regression, we use the marginal probabilities.
The statistical likelihood ratio (LR) is rejected at the significance level of 1% in all models, i.e.,
the hypothesis that all estimated slope coefficients are statistically different from zero is not accepted in
any case. The level of adjustment of the model verified by McFadden R
2
index and the classification
based on the expected probability suggest that the variables used in the study reinforce the capacity to
predict the probability of innovation, particularly by type of innovation.

5 Analysis of results

5.1 - Descriptive statistics of the variables

The models constructed were based on the set of variables presented in the previous section. Table
4 highlights the descriptive statistics of these variables. Concerning the control variables, it appears that
the firms in the sample employ an average of 400 employees, achieving net sales revenues in the amount
of R$ 91,5 millions per firm in 2005
7
. The average productivity of these firms can be considered high, in
the range of R$ 66.000 per worker, and the average annual salary paid in 2005 was approximately
R$ 18.400. The value added to production per worker would be in the range of R$ 46.000, an amount that
can also be considered high, when compared with the mean of the Brazilian industry.
Regarding the participation in foreign trade, the firms in the sample generated R$ 140 billion in
trade with foreign countries; on average, the sum of exports was equivalent to R$ 35 million, generating a
trade surplus of R$ 13 million. Information about innovative efforts reveal that, on average, R&D
departments of these firms are small, employing only 4 employees, which is equivalent to approximately
1% of their employees. Spending on innovative activities was equivalent to 5.5% of net sales, focusing
primarily on the acquisition of machinery and equipment (31% of total expenditure on innovative
activities), and, in a much smaller scale, to the development of R&D activities (comprising 12% of total

7
Information presented in Brazilan monetary unit, the Brazilian Real.
29
expenditure on innovative activities). It is noteworthy that efforts related to training seemed also to be low,
comprising only 1.9% of the total expenditure on innovative activities.

Table 4 Descriptive statistics of the independent variables Data extracted from PIA and
PINTEC (2005). (N = 3.978)
Variables Mean
Minimum
Values
Maximum
Values
Standard
Deviation
Internal Learning (INTLEARN) 0,1980 0 1 0,334
Vertical Learning (VERTLEARN) 0,6148 0 1 0,307
Horizontal Learning (HORIZLEARN) 0,3094 0 1 0,288
Learning with S&T institutions (S&TLEARN) 0,1760 0 1 0,272
Other Sources of Learning (OTHERLEARN) 0,4769 0 1 0,341
Vertical cooperation (VERTCOOP) 0,0677 0 1 0,219
Horizontal cooperation (HORCOOP) 0,0239 0 1 0,114
Cooperation with S&T institutions (S&TCOOP) 0,0343 0 1 0,144
Employees (EMP) 401,69 1 45.176 1311,16
Net Sales (NETSALE)* R$ 91.527,73 R$ 8,31 R$ 11.809.132,37 433.316,80
Productivity Value added per Employees (PRD)* R$ 66.320,00 R$ 0,012 R$ 2.293,43 387,40
Value added (VAD)* R$ 46.821,19 R$ (152,34) R$ 1.556,41 133,16
Average Wage (AW)* R$ 18.391,97 R$ - R$ 1.557,77 247,48
Trade Balance (Exports Imports) (TBE)* R$ 13.251,48 R$ (1.605.304,85) R$ 4.790.014,98 158.793,96
Flow of Foreign Trade (FFT)* R$ 35.238,09 R$ - R$ 12.185.566,42 297.411,61
Employees in R&D activities (EMPR&D) 4,1090 0 3278 54,3245
Spending on Innovative Activities / Net Sales (SIA/NETSALE) 5,5% 0% 98,38% 0,1136
R&D Expenses / Spending on Innovative Activities (R&D/SIA) 12,16% 0% 100% 0,2604
Spending on machinery and equipment / Spending on Innovative Activities (SME/SIA) 41,33% 0% 100% 0,4246
Expenditures on Training and Competence Building / Spending on Innovative Activities (ETCB/SIA) 1,98% 0% 100% 0,0825
* Information in R$ 1.000,00 (Thousand Brazilian Reais).
Source: Own elaboration based on micro-data from PINTEC / PIA IBGE (2005).

For the set of indicators related to the processes of learning and cooperation, it seems that the
main form of interaction developed by the firms if the sample refers to vertical learning (VERTLEARN),
with an average indicator of 0.61. Learning related to other sources of information (OTHERLEARN) and
learning with competitors and consulting firms (HORIZLEARN) have a secondary importance for the
firms in the sample, with indicators of 0.47 and 0.30, respectively. The internal learning (INTLEARN) is,
on average, considered of low importance for the firms in the sample with an average indicator of 0.19, as
well as the Learning with S&T institutions, with an average indicator of 0.17.
Regarding cooperative relations, as well as to the learning sources, those related to customers and
suppliers assume greater importance for the companies analyzed. However, it is emphasized that
cooperation with universities and training centers is considered more important that cooperation with
competitors and consulting firms. Another point to be highlighted is the high standard deviation shown by
these indicators, indicating that the firms in the sample have very different behaviors concerning these
variables.
The frequency distribution of the variable "dummy agglomeration" reveals that it takes the value 1
for 1.885 firms in the sample. Thus, it indicates that 47% of the firms in the sample are inserted in the
industrial agglomerations previously identified in the analysis, and that 53% are not inserted in those
structures.
Table 5 shows the frequency distribution of the dependent variables related to the innovative
performance of the firms in the sample. Regarding the introduction of innovative products, it appears that
43% of the firms introduced new products that were already existent on the market; in contrast, only
14.35% of the firms introduced products effectively new for the domestic and/or international market..

Table 5 Frequency distribution of the indicators related to the introduction of product and
process innovations - Data extracted from PINTEC (2005) (N = 3.978)
Indicator / Value
Not Innovate - 0 Innovate for the firm 0,5
Innovate for the market/ sector
1
N % N % N %
INOVPROC 680 17,09% 2.935 73,78% 363 9,13%
Source: Own elaboration based on micro-data from PINTEC IBGE (2005).

Therefore, based on the descriptive statistics of the variables used in the analysis, it is observed
that, for the firms in the sample, the relations of learning and cooperation are mainly concentrated along
the production chain. The firms in the sample invest approximately 5% of its net sales revenues in
30
innovative activities. However, these activities are mainly focused on the purchase of machinery and
equipment, with R&D expenses comprising only 12% of the expenses with innovative activities and
efforts related to training being particularly reduced. Participation of those firms in the international trade
flows is high, with the sample generating trade surpluses consistent with the volume of their foreign
transactions.
Regarding innovative performance, it is observed that companies have high capabilities to
"imitate" products and processes, but the introduction of new products and processes occurs on a smaller
scale. The sample is also divided in similar percentages among the firms inserted in industrial
agglomerations and those not included in these structures. The next subsection presents the results
obtained from the econometric models applied to capture the differences between these two groups.

5.2 - Determinants of the introduction of product innovations

The first ordered probit model was constructed for the dependent variable related to the
introduction of innovative products. In this case the dependent variable takes the value 1 if firms
introduced new products for the domestic/international markets, 0.5 if firms introduced new products
already existents and 0 if they not introduced any of these innovations. The variables presented in the
previous section was suffered a mathematical manipulation (being standardized) and operates as
independent variables. Table 6 shows the results obtained by the model in terms of significance of the
variables related to the processes of learning and cooperation, as well as to the set of control variables. It
should be noted that, for the set of 12 control variables, 50% of them were not statistically significant at a
significance level of 10%; however, from the 8 variables that capture the processes of learning and
cooperation only 3 were not significant. This feature reinforces the influence of those processes for the
innovative performance in terms of product innovations.

Table 6 Results of Ordered Probit Model for the explanatory variables selected to innovative
firms with product innovation.
Ordered Probit
Dependent Variable: INOVPROD N=3978
Explanatory Variables Coef.
Std. Err.
z
Dummy Agglomeration -0,029 0,038 -0,760
Internal Learning (INTLEARN) 0,456 *** 0,028 16,020
Vertical Learning (VERTLEARN) 0,067 *** 0,021 3,130
Horizontal Learning (HORIZLEARN) -0,046 ** 0,022 -2,090
Learning with S&T institutions (S&TLEARN) 0,070 *** 0,024 2,940
Other Sources of Learning (OTHERLEARN) -0,033 0,021 -1,600
Vertical cooperation (VERTCOOP) 0,095 *** 0,027 3,480
Horizontal cooperation (HORCOOP) -0,031 0,026 -1,210
Cooperation with S&T institutions (S&TCOOP) 0,042 0,027 1,560
Employees (EMP) 0,085 ** 0,041 2,100
Net Sales (NETSALE)* 0,389 *** 0,149 2,600
Productivity Value added per Employees (PRD)* 0,017 0,063 0,260
Value added (VAD)* 0,029 0,032 0,900
Average Wage (AW)* 0,041 0,152 0,270
Trade Balance (Exports Imports) (TBE)* -5,240 *** 1,062 -4,930
Flow of Foreign Trade (FFT)* 5,287 *** 1,063 4,980
Employees in R&D activities (EMPR&D) 0,055 0,094 0,590
Spending on Innovative Activities / Net Sales (SIA/NETSALE) 0,076 0,067 1,140
R&D Expenses / Spending on Innovative Activities (R&D/SIA) 0,065 ** 0,026 2,520
Spending on machinery and equipment / Spending on Innovative
Activities (SME/SIA) -0,296 *** 0,020 -14,570
Expenditures on Training and Competence Building / Spending on
Innovative Activities (ETCB/SIA) 0,009 0,019 0,460
Cutoff point 1 -0,383246 0,0296
Cutoff point 2 1,20884 0,0346
Adjustment Model
Log likelihood: -3324,3811 Pseudo R
2
: 0.1670
LR chi
2
(6): 1346,76***
* Significance level of 10%, ** Significance level of 5%, e *** Significance level of 1%.
Source: Own elaboration based on micro-data from PINTEC / PIA IBGE (2005)..

31
It was also found that the control variables related to economic performance (productivity and
value-added production), remuneration of employees, spending on innovative activities as a proportion of
net sales, employees in R&D and training efforts showed no significant coefficients, suggesting that these
variables do not influence the introduction of product innovations for the firms in the sample. Due to
these features, the model was "re-estimated" without the control variables that seemed to be not
significant. The data presented in Table 7 comprises the results obtained after this procedure from the
ordered probit model for the entire sample.

Table 7 Ordered Probit model results for the selected explanatory variables and significant
control variables concerning product innovations
Ordered Probit Marginal effects
Dependent Variable: INOVPROD N=3.978 Mean
Explanatory Variables Coef. Std. Err. z Not Innovate Innovation for the firm
Innovation for the
market
Dummy Agglomeration -0,030 0,038 -0,800 0,01165 -0,00660 -0,00506
Internal Learning (INTLEARN) 0,460 *** 0,028 16,550 -0,17701 *** 0,10013 *** 0,07688 ***
Vertical Learning (VERTLEARN) 0,067 *** 0,021 3,110 -0,02565 *** 0,01451 *** 0,01114 ***
Horizontal Learning (HORIZLEARN) -0,045 ** 0,022 -2,070 0,01748 ** -0,00989 ** -0,00759 **
Learning with S&T institutions (S&TLEARN) 0,071 *** 0,024 2,960 -0,02718 *** 0,01537 *** 0,01181 ***
Other Sources of Learning (OTHERLEARN) -0,032 0,021 -1,540 0,01232 -0,00697 -0,00535
Vertical cooperation (VERTCOOP) 0,095 *** 0,027 3,490 -0,03666 *** 0,02074 *** 0,01592 ***
Horizontal cooperation (HORCOOP) -0,031 0,026 -1,190 0,01177 -0,00666 -0,00511
Cooperation with S&T institutions (S&TCOOP) 0,043 0,027 1,590 -0,01653 0,00935 0,00718
Employees (EMP) 0,089 ** 0,039 2,300 -0,03414 ** 0,01931 ** 0,01483 **
Net Sales (NETSALE) 0,391 *** 0,128 3,040 -0,15034 *** 0,08504 *** 0,06530 ***
Trade Balance (Exports Imports) (TBE) -5,222 *** 1,056 -4,940 2,00906 *** -1,13642 *** -0,87261 ***
Flow of Foreign Trade (FFT) 5,271 *** 1,057 4,990 -2,02766 *** 1,14703 *** 0,88062 ***
R&D Expenses / Spending on Innovative
Activities (R&D/SIA)
0,066 ** 0,026 2,580 -0,02554 ** 0,01445 ** 0,01109 **
Spending on machinery and equipment /
Spending on Innovative Activities (SME/SIA)
-0,294 *** 0,020 -14,550 0,11291 *** -0,06387 *** -0,04904 ***
Cutoff point 1 -0,383246 0,0296
Cutoff point 2 1,20884 0,0346
Adjustment Model
Log likelihood: -3330,196 AIC: 6694,392 Pseudo R2: 0,1670
LR chi2(21): 1335,13*** BIC: 6801,297

Based on the data, all coefficients related to the explanatory variables seem to be statistically
significant, with the exception of "Dummy agglomeration", "Other Sources of Learning ", "Horizontal
Cooperation" and "Cooperation with S&T institutions. The signs of coefficients relate to the explanatory
variables seem to be positive
8
, validating the argument related to a positive influence of those dimensions
for the introduction of product innovations.
It should be noted that the marginal probabilities were calculated for an average firm in the sample,
reflecting the situation in which the firm performs those processes with the same intensity of the mean of
the sample. Regarding the control variables, we find that variables related to foreign trade seems to be
those that most positively and negatively influence the likelihood of firms introduce product innovations,
both to imitative (new to the firm) as well as to more relevant ("new to the market") innovations. An
increase of one unit, that is, one standard deviation above the average, in the flow of foreign trade
increases expressively the likelihood of firms to innovate in products: this probability increases 114% for
the possibility of introducing innovations new to the firm and increases 88% for the possibility of
introducing innovations new to the market
9
. In contrast, an increase in the foreign trade surplus reduces
the likelihood of firms to innovate, both to innovations new to the firm as well as to innovations new
to the market. This fact reflects, in part, the structure of Brazilian exports, which are strongly based on
commodities that make it difficult the introduction of product innovations.
Concerning other control variables, it should be noted that firms size positively influences the
likelihood of innovate in products. The variation of a unit of employee increases the likelihood of firms to

8
Except for those related to Trade Balance and to Spending on machinery and equipment/Spending on Innovative
Activities.
9
However, it should be noted that the amount achieved by the marginal probabilities regarding the variables related to foreign
trade should be analyzed with caution, being affected by the high standard deviation of this variable.
32
introduce innovations new to the market by 1.4% and increases the likelihood of firms to introduce
innovations new to the firm by 1.9%. A one-unit increase in net sales revenues entails a rise of 8.5% in
the probability of firms to introduce innovations new to the firm and of 6.5% to introduce innovations
new to the market. Innovative efforts also generate distinct effects on the likelihood of firms to innovate
in products. The one-unit increase on R&D expenditure in relation to net sales increases the likelihood of
firms to introduce innovations new to the market by 1.1% and to to introduce innovations new to the
firm by 1.4%. However, an increase in the spending on machinery and equipment reduces the likelihood
of firms to innovate. Thus, it appears that R&D expenses can trigger more virtuous processes than other
innovative activities.
The analysis of indicators that try to capture the characteristics of interactive processes reveals
that, among the significant variables, only that related to horizontal learning has a negative impact to
the likelihood of product innovation
10
. The other variables tend to generate positive effects on the
likelihood of firms to innovate. A one-unit increase in internal learning increases the probability of
firms to introduce innovations new to the firm in 10% as well as an increase in 7.6% concerning
innovations new to the market. The interaction with universities, training centers and institutions
dedicated to the provision of tests also generates positive effects on the likelihood of firms to innovate in
products, with a one-unit increase in the indicator generating a 1.5% increase in the probability of
introduce innovations new to the firm and a 1.1% increase in the probability of introduce innovations
new to the market.
Interactions with customers and suppliers have a positive impact in firms abilities to innovate in
products. This fact is evidenced by the values of the marginal probabilities for the indicators of vertical
learning and vertical cooperation. A one-unit increase in the VERTLEARN indicator increases the
probability of introducing innovations new to the market by 1.1%, as well as an increase by 1.4% in the
probability of introducing innovations new to the firm. The VERTCOOP indicator raises innovations
new to the firm by 1.5% and raises innovations new to the firm by 2%. Therefore, concerning
interactive practices, with the exception of the internal learning, the relationships that influence more
intensively the innovative performance of the firms (in terms of product innovations) occur along the
productive chain.
Based on these evidences, it should be concluded that the variables associated with interactive
practices influence positively the firms probability of introducing product innovations. When these
practices are compared with the set of control variables, there are evidences that they raise more
significantly the probability of introducing product innovations. Altogether, the five significant variables
that capture the intensity of learning and cooperation elevate the likelihood of firms to introduce
innovations new to the market by 10.8% and to introduce innovations new to the firm by 14%. On
the other hand, the six control variables that were also significant for the introduction of product
innovations elevate the likelihood of firms to introduce innovations new to the firm by 6.5% and to
introduces innovations new to the firm by 5%.
Regarding this first model, it should be highlighted that the variable "dummy agglomeration" was
not significant. This means that the probabilities of firms inserted in industrial agglomerations and firms
not inserted in them to introduce product innovations tend not to be different. However, based on this
model, when those two groups are confronted, we cannot identify significant differences concerning the
impacts of the processes of learning and cooperation in the innovative performance of the firms. To
clarify this issue, two additional models were tested, one for each group of firms, using the model for the
pooled sample as a basis. Table 8 presents the results of these two models.

10
This negative relationship may be associated with the appropriability of product innovations. Horizontal learning reflects, in
part, interactions with competitors and the appropriateness of the results of this process, when it becomes materialized in the
introduction of product innovations, may create conflicts of interest between the parties. As a consequence, horizontal
cooperation tends not to be relevant for this type of innovation.
33
Table 8 Results of Ordered Probit models for innovative firms inserted and not inserted in
industrial agglomerations Product innovations.
Ordered Probit Firms Inserted in Industrial Agglomerations (N=1.885) Firms Not Inserted in Industrial agglomerations (N=2.093)
Dependent Variable: INOVPROD
Marginal Effects Marginal Effects
Mean Mean
Explanatory Variables Not Innovate
Innovation for
the firm
(incremental)
Innovation for the
market
(relevant)
Not Innovate
Innovation for
the firm
(incremental)
Innovation for the
market
(relevant)
Internal Learning (INTLEARN) -0,17807 *** 0,08847 *** 0,08960 *** -0,17233 *** 0,10803 *** 0,06430 ***
Vertical Learning (VERTLEARN) -0,03041 ** 0,01511 ** 0,01530 ** -0,02248 ** 0,01409 ** 0,00839 **
Horizontal Learning (HORIZLEARN) 0,03060 ** -0,01520 ** -0,01540 ** 0,00816 -0,00511 -0,00304
Learning with S&T institutions (S&TLEARN) -0,04302 *** 0,02137 *** 0,02164 *** -0,01440 0,00903 0,00537
Other Sources of Learning (OTHERLEARN) 0,01055 -0,00524 -0,00531 0,01505 -0,00944 -0,00562
Vertical cooperation (VERTCOOP) -0,04224 *** 0,02099 *** 0,02125 *** -0,02241 0,01405 0,00836
Horizontal cooperation (HORCOOP) -0,00111 0,00055 0,00056 0,02814 * -0,01764 * -0,01050 *
Cooperation with S&T institutions (S&TCOOP) 0,00335 -0,00166 -0,00169 -0,04141 *** 0,02596 *** 0,01545 ***
Employees (EMP) -0,03016 0,01499 0,01517 -0,03070 0,01925 0,01145
Net Sales (NETSALE) -0,32834 *** 0,16314 *** 0,16521 *** -0,06598 0,04137 0,02461
Trade Balance (Exports Imports) (TBE) 1,35647 *** -0,67402 *** -0,68246 *** 3,52368 *** -2,20890 *** -1,31473 ***
Flow of Foreign Trade (FFT) -1,37607 *** 0,68370 *** 0,69238 *** -1,82499 * 1,14409 * 0,68090 *
R&D Expenses / Spending on Innovative
Activities (R&D/SIA)
-0,02098 0,01043 0,01056 -0,03117 ** 0,01954 ** 0,01163 **
Spending on machinery and equipment /
Spending on Innovative Activities (SME/SIA)
0,10955 *** -0,05443 *** -0,05512 *** 0,11649 *** -0,07303 *** -0,04346 ***

Cutoff point 1: -0,327 Cutoff point 1: -0,33867
Cutoff point 2: 1,151 Cutoff point 2: 1,36522
Adjustment Model Adjustment Model
Log likelihood: -1573,4309 AIC:3178,86 Log likelihood: -1735,24 AIC: 3502,49
LR chi2(14): 740,47*** BIC: 3267,25 LR chi2(14): 608,36*** BIC: 3592,83
Pseudo R
2
: 0,19 Pseudo R
2
: 0,14

For firms inserted in industrial agglomerations, the number of significant variables related to
learning processes and cooperation is equivalent to the whole sample and is slightly larger than to firms
not inserted in those agglomerations
11
. Regarding the control variables, two of them - Number of
Employees (EMP) and the ratio between R&D Expenses and the Spending on Innovative Activities
(R&D/SIA) - cease to be significant for firms inserted in agglomerations and, in addition, the variables
related to the external trade - Trade Balance captured by the difference between Exports and Imports
(TBE) and the Flow of Foreign Trade (FFT) reduce their influence in the introduction of product
innovations. Simultaneously, the variable related to the size of the firm (NETSALE) expands its influence.
In contrast, to firms not inserted in industrial agglomerations, the two variables related to the size of the
firms Number of Employees (EMP) and Net Sales (NETSALE) become more significant. At the same
time, to this group of firms, the variables related to foreign trade - Trade Balance and the Flow of Foreign
Trade (FFT) tend to influence firms innovative performance in a much higher scale when compared to
the overall sample and to the group of firms inserted in industrial agglomerations.
Regarding the interactive processes, for both firms inserted and not inserted in industrial
agglomerations, internal learning seems to be the factor with higher impact in the likelihood to innovate
both to incremental and radical innovations. For firms inserted in industrial agglomerations, it seems clear
that indicators related to interactive practices influence on a higher scale the likelihood to innovate,
especially with regard to the introduction of more relevant innovations, those that are new to the market.
This trend can also be observed to the interactions along the supply chain, as well as to interactions with
universities and research centers, with a one-unit increase in the S&TLEARN indicator raising the
likelihood to innovate incrementally by 2.13% and to innovate radically by 2.16%.
A comparative analysis of the two groups of firms (inserted and not inserted in industrial
agglomerations) indicates that interactive processes influence the likelihood of introducing innovations
new to the firm in a similar way: 13.07 % for firms inserted in agglomerations and 13.04% for firms
non-inserted. In contrast, concerning the introduction of more relevant innovations (innovations to the
market), the influence of these processes tends to be much higher for the firms inserted in industrial
agglomerations. While an increase of one unit in the set of variables related to interactive processes

11
Five variables are relevant for firms inserted in industrial agglomeration vis--vis four variables for firms not inserted in
them.
34
increases by 7.7% the probability of firms not inserted in industrial agglomerations introduce
innovations to the market, for the group of firms inserted in industrial agglomerations the same
variables raise by 13.24% that probability.
We can conclude that, concerning product innovations, interactive processes seem to be positively
related to the likelihood of introducing this type of innovation. Specifically, the internal learning, relations
along the productive chain - Vertical Learning (VERTLEARN) and Vertical Cooperation (VERTCOOP)
- raise considerably the likelihood of firms to innovate in products, both in terms of innovations to the
firm and to the market.. The influence of the interactive processes in firms innovative performance
tends to be more effective when those firms are inserted in industrial agglomerations. Therefore,
interactions seem to influence on a higher scale the introduction of product innovations to firms inserted
in industrial agglomerations, and those effects seem to be stronger to innovations that are new to market
compared with those that are new to the firm.

6. Concluding Remarks

An exploratory analysis of industrial agglomerations was developed from an evolutionary
approach, trying to articulate the static competitive advantages generated by the spatial agglomeration
with dynamic competitive advantages obtained through the strengthening of learning practices and
multiple forms of cooperation. The procedures used in the study allowed the identification of a set of
1.129 agglomerations in the Brazilian manufacturing sector which together were responsible for 33% of
employment, 20% of establishments and 33% of the remuneration generated in those activities. The
relative degree of territorial concentration, for different groups of economic activities, influences the
creation of industrial agglomerations. A differentiation between firms inserted in industrial
agglomerations and firms not inserted in them has clarified some issues related to the determinants of the
innovative performance of the these two groups.
Based on econometric models, we conclude that interactive processes affect on a higher scale the
introduction of product innovations. Mechanism of internal learning (INTLEARN) and vertical
cooperation (VERTCOOP) along the productive chain seem to be the factors that raise more intensively
the likelihood of firms to innovate in products, both incrementally as radically. The impact of interactive
practices to the innovative performance of firms seems to be more effective when the firms are inserted in
industrial agglomerations. Therefore, it is suggested that interactions influence on a higher scale the
introduction of product innovations in this group of firms. As a general trend the analysis suggests that
firms inserted in industrial agglomerations develop learning processes and cooperation practices more
intensively, when compared to the rest of the Brazilian industry. The greater virtuosity of these processes
enables those firms to obtain higher innovative gains.
Regarding analytical unfolding of the research, it seems very important to advance in a better
understanding of the learning processes and cooperative practices at the level of structured industrial
agglomerations, particularly through more detailed empirical analysis. Assuming that relevant
institutional differences might be identify in local spaces, it is important to delimit the main
characteristics of these factors and how they can influence firms innovative performance. It is also
important to consider other dimensions not adequately captured by general innovation surveys like
PINTEC, which are formatted to capture general characteristics of the whole industry. In a context of
huge regional and sectoral heterogeneity, such as observed in the Brazilian industry, the analytical
framework should be flexible enough to capture this heterogeneity. In this sense, empirical studies
focused on more representative models of industrial agglomerations, based on a similar methodology to
that explored in the article, are likely to contribute to a better understanding of the subject.

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