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Abstract Knowledge has become a strategic resource at the heart of regional innovation and economic upgrading in the 21st Century. As global competition for innovation intensifies, a region’s long-term competitiveness increasingly depends on its ability to continuously generate, diffuse, and recombine complex knowledge. While existing literature has extensively examined knowledge accumulation and R&D investment, relatively little attention has been paid to how the physical structure of urban space affects the quality, particularly the complexity, of knowledge. Addressing this gap, this paper investigates how compact urban spatial forms influence the production and diffusion of complex knowledge across Chinese prefecture-level cities.
Drawing on a comprehensive panel dataset spanning 1992 to 2020, we construct city-level knowledge complexity indicators based on patent applications, complemented by data on research and development(R&D) intensity, patent citation velocity, intra-city patent collaboration, and product export diversity. To more accurately capture urban spatial configuration, we introduce a novel methodological framework that replaces conventional Euclidean distance with a network-based approach integrating Delaunay triangulation, breakpoint detection, and Dijkstra’s shortest-path algorithm. This allows for a more precise assessment of urban compactness by reflecting the intricate interactions between built form, infrastructure connectivity, and internal accessibility.
Our empirical analysis reveals that compact urban forms significantly enhance knowledge complexity, with stronger effects observed in cities characterized by low technological diversity or well-developed digital infrastructure. We identify three primary mechanisms underpinning this relationship. First, spatial compactness fosters high-tech firm agglomeration, intensifying market competition and stimulating R&D investment. Second, geographic proximity improves both local and global channels of knowledge diffusion, facilitating the transmission of complex, often tacit knowledge through face-to-face interaction and knowledge spillovers. Third, compact urban structures reduce collaboration costs, thereby increasing the likelihood of localized knowledge partnerships and enabling more effective recombination of diverse knowledge components.
Beyond these mechanisms, we further examine the micro-foundations of knowledge complexity through the lens of firm-level product diversity. Using industrial firm records and customs export data, we find that compact spatial forms significantly enhance firms’ product diversity—serving as an observable external manifestation of knowledge complexity. This effect is particularly pronounced among small and medium-sized enterprises (SMEs), non-state-owned firms, and foreign-invested enterprises, underscoring the role of compact cities in fostering flexible, innovation-oriented enterprises.
The findings offer important policy implications for urban development and innovation governance. First, cities should shift from extensive spatial expansion toward intensive spatial optimization to improve efficiency and facilitate knowledge flows. Second, differentiated innovation ecosystems must be constructed in accordance with a city’s development stages, strengthening physical agglomeration in emerging regions while expanding digital infrastructure and virtual clustering in land-constrained cities. Third, greater efforts are needed to build local knowledge platforms and link them with global innovation networks, accelerating the circulation and recombination of innovation factors to enhance urban competitiveness in the knowledge economy.
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Published: 22 March 2026
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