Booms, Not Busts, Drives Innovation, Especially in Mid Size American Cities

Summary

New research provides ammunition for spreading federal R&D dollars beyond Silicon Valley. Economists Federica Coelli (EBRD) and Paul Pelzl (NHH Norwegian School of Economics) studied 2.5 million patents across 759 U.S. communities over 40+ years. Their finding: smaller urban areas innovate effectively when economies improve.Current reality: Just 5% of U.S. communities produce 75% of all patents.ShareThe boom effect:8.3% increase in overall patents when oil/gas employment doubles8.5% DECREASE in oil & gas patents during their own boom (the paradox)2x stronger innovation response in non-metro vs. metro areas1 additional patent per 100,000 residents during boomsEconomic impacts:3.7% employment increase, 2.2% wage growth during booms4.6% GDP jump, 6.2% local government revenue surgeWho actually innovates:58% of patents from incumbent inventors (not newcomers)5% from in-movers, 37% from first-time inventors57% company patents, 32% individual, 2% universityStudy scope:2.5 million patents analyzed over 40+ years (1969-2012)759 U.S. commuting zones studied5% of zones currently produce 75% of all patentsResearchers used oil and gas booms as natural experiments through a sophisticated shift-share methodology, not simple correlations. These booms create substantial economic shocks across communities: population increases 1.9%, employment rises 3.7%, wages grow 2.2%, personal income climbs 1.8%, GDP jumps 4.6%, and local government revenue surges 6.2%.The study's precision comes from tracking patents by filing date (when innovation actually occurs) rather than grant date, and using fractional counting when multiple inventors or locations are involved. The results remain robust whether researchers use oil prices instead of employment or control for coal booms.The paradox: While overall patents surge 8.3%, oil and gas companies cut their own patenting by 8.5% during boom times — even as they dramatically increase extraction activity.The numbers tell the story: When oil prices and...