Understanding the Diffusion of Knowledge and Creativity and Its Impact on the Innovative Performance of Large Cities

ABSTRACT Knowledge exchanges are one of the key micro‐foundations for agglomeration economies and innovation. Skilled and creative workers have been identified as key actors in the dissemination of strategic knowledge in cities. However, evidence is still lacking on how their presence contributes to improving the economic and innovative performance of large cities. This study aims to explore the diffusion of innovative capacity and creativity at neighbourhood level, considering workers' social interaction at places of work and residence and its association with the creation of new firms in the metropolitan region of Madrid. To this end, an agent‐based simulation model was used to determine the contagion model parameters. The results confirm that the contagion of innovative capacity and creativity, shaped by face‐to‐face contacts, is significantly associated with the creation of new firms. They also reflect the need to consider the multi‐faceted dimension of distance among urban actors beyond geographical proximity, and the co‐existence of general diffusion channels related to social interaction in urban centres with specialised spatial channels. The implications for urban and regional policy are discussed.