Urban Economic Complexity and Functional Capacity: What Better Supports Cross-City Collaborative Innovation in a Changing Knowledge Economy?

Abstract

As innovation becomes increasingly complex and knowledge-intensive, cities can no longer rely solely on internal resources. Instead, their ability to participate in cross-city collaborative innovation is becoming central to long-term competitiveness. While prior studies have emphasized urban endowments and knowledge base features, such as relatedness and diversity, these alone cannot explain why some cities are consistently chosen as frequent partners in complex, cross- domain innovation. This study proposes that two additional dimensions, structural complexity and functional capacity, are key to understanding cities’ collaborative potential. Structurally, cities with more complex and interconnected economies are better able to accommodate multiple parallel innovation projects. Functionally, a higher share of advanced producer services enables cities to coordinate knowledge flows and manage inter-organizational collaboration. Using Economic Complexity Analysis (ECA) and a stratified conditional logit model for co-patent data across Chinese cities, the analysis found that as the foundation of economic complexity shifts away from manufacturing toward knowledge processing and coordination services, cities structurally aligned with this development direction are better positioned to participate in complex, cross-city innovation. Both structural and functional factors significantly shape collaborative innovation activities; moreover, their importance is especially pronounced in emerging domains like digital and health technologies, whereas traditional sectors like the mechanical domain rely more on technological proximity. These findings underscore the need to look beyond R&D capacity and knowledge similarity, and instead consider how cities are internally structured to support innovation at scale. The study contributes to evolutionary economic geography by identifying what urban enabling structures better support collaborative innovation in an increasingly complex economy.