Innovation and Employment Growth in Industrial Clusters: Evidence from Aeronautical Firms in Germany∗

This paper investigates the impact of various agglomeration forces on employment and innovation for a sample of aeronautical cluster firms in Northern Germany and a control group of geographically dispersed aeronautical firms in other German regions. Employment growth is positively affected by labor market pooling but this effect is not cluster-specific. The firms’ probability of innovating is influenced by knowledge flows from scientific institutions and public information sources as well as rivalry and demanding customers. However, only the effect of demanding customers is cluster-specific.