Abstract
<jats:p>Abstract:This paper investigates the spatial distribution of innovation-oriented investment flows— specifically Venture Capital (VC), Corporate Venture Capital (CVC), and R&D-intensive Foreign Direct Investment (FDI)—and their causal impact on regional economic divergence. While nationallevel studies suggest that innovation finance bolsters aggregate productivity, the subnational consequences remain under-theorized. Using a novel "regional innovation-capital flow" dataset and a shift-share (Bartik-style) instrumental variable design, I examine whether these flows catalyze broadbased convergence or entrench "superstar region" dynamics. The empirical analysis utilizes subnational deal locations, geocoded patents, and administrative data to track the transmission of capital into local productivity and wages. Preliminary results suggest that while innovation capital significantly raises regional TFP, the gains are highly concentrated in existing hubs due to agglomeration economies and human capital sorting. Furthermore, I find evidence of a "divergence tax" where high-growth investment flows exacerbate intra-regional inequality and housing-related displacement for non-innovation workers. This study provides a regional general-equilibrium interpretation that reconciles local innovation production with the distributional costs of geographic clustering, offering critical insights for place-based industrial policy.</jats:p>