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In this paper, it is argued that innovation is the key driver of competitiveness and productivity. Innovation is an internationally distributed system of activities and therefore geographically localised and clustered firms are likely to form only a limited set of the total actors engaged in such a system. Where Porter's concept of clusters is used to describe mainly localised economic interactions it is not therefore likely to contribute much to an understanding of the relationships between innovation and economic growth. On the other hand, when the concept is applied to trading nodes in the global economy it is more likely to incorporate the international linkages between suppliers, producers and customers that are a key characteristic of the most innovative firms. The paper focuses on Porter's main arguments concerning the relationships between innovation and clustering. The vagueness of his analysis of the geography of clusters is highlighted. Nevertheless, following his argument that trading clusters are the key to economic growth, the analysis focuses on the nature and extent of linkages and in particular their contribution to innovation. Evidence from previous studies is used to suggest that national and international linkages and networks are just as significant as their local counterparts for firms in the UK. Evidence from the third Community Innovation Survey is used to test four of Porter's six hypotheses concerning the contribution of clustering to innovation. All of them are shown to benefit from national and international linkages and collaboration.

This paper reports the findings of a survey of innovative firms in the South East of England undertaken during 1999/2000. It is argued that in order to explain the observed concentration of innovation in a limited number of cities both in the US and in Europe it is necessary to consider both local knowledge spillovers and international knowledge transfers. Knowledge and experience are argued to be important in overcoming the uncertainties that characterise the innovation process. The survey reported here shows that two main categories of knowledge are important for SMEs. These are first mainly supply-side local knowledge spillovers from suppliers, collaborators and HEIs. Secondly, they are often demand-side national and international knowledge transfers from clients, customers and their international distributors. Cities rich in both local capacity and international connections are usually the locations for high levels of innovation among the firms based in them.

This paper analyses why innovations often cluster in a few metropolitan islands of innovation. The reason for this interest is that a growing body of neo-Schumpeterian economic theory argues that economic recovery after periods of economic recession and depression, such as we have seen during the 1980s and early 1990s, is driven by innovations. These do not spring up all over the country but are spatially concentrated in a small number of metropolitan regions. It is therefore important to know why this is so in order to evaluate the effectiveness of various UK and EU public policies whose specific objectives are to stimulate local and regional economic development. Agglomeration theory is used in order to understand the driving forces behind the spatial clustering of new innovations. This leads to four explanatory hypotheses. These are that innovation is facilitated by agglomeration in order to reduce distance transaction costs between firms in different spaces; or by local factor conditions which provide factor cost efficiencies within given localities; or by continuous production hierarchy negotiation within particular spaces; or by demand pull conditions that lead to agglomeration behaviour which maximises the coincidence between both production hierarchies and markets. These hypotheses were tested on a small sample of award-winning firms in the highly innovative county of Hertfordshire. It is one of the most innovative parts of the Western Arc around London which is UK's most innovative metropolitan region. The main findings are that, in this case study, innovations were concentrated in Hertfordshire for two main groups of reasons. The first was that the county is able to acquire important contributions to innovation production. These include high-quality human resources, venture and risk capital, knowledge and information, and new science and technology. These are not necessarily embedded in the area to start with but are comparatively available in the South East region as a whole. The second main group of findings is that innovation in Hertfordshire is facilitated by the ability to arrange simultaneously both production and consumption. Purchasers of military, health and welfare, and intermediate production goods have strong impacts on the design and development of innovations in Hertfordshire. Many of them are located in the core metropolitan regions of other advanced economies. Hertfordshire provides an innovative production node in global markets.