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This thesis investigates whether the tendency for Advanced Business Services to concentrate in Sydney and Melbourne implies a similar spatial bias in the propensity for innovation across the Australian economy. The various models of business innovation are reviewed. The traditional Schumpeterian view is characterized by a strategic leap in customer offer, based on some new break-through technology. Alternatively, innovation may proceed in incremental or organic fashion. Other conceptual frameworks for analyzing innovation conceive of it as a network process, which is becoming more prevalent as corporate value chains 'unbundle' with improved communication technologies, reduced barriers to capital transfers and new techniques for managing transaction risk. Regardless of which model of innovation is applied, Advanced Business Services have a critical role in sparking and facilitating innovation. This is gathering potency as the 'thinking part' of the value chain becomes increasingly separable from the 'making' and 'distribution' aspects of production. While Advanced Business Services are vital to successful innovation in the modern economy, they continue to operate within primitive commercial models where social networks and trust based relationships are paramount in successful client service. The innovation catalyst function of Advanced Business Services may be prone to a significant distance deterioration effect, because of the difficulty of maintaining the requisite social relationships over an extended geography. This, in turn, suggests an emergent core and periphery geography in innovation. The thesis examines this hypothesis through both demand and supply side analyses. The latter involves a random sample survey of approximately 100 Advanced Business Service firms in Melbourne. This confirms the tendency of these firms to favour local clients. The demand side analysis includes case studies of Advanced Business Service use and innovation outcomes amongst six metropolitan Melbourne based firms and six similar firms based some two hours drive away in Bendigo. In line with the hypothesis, the metropolitan cases show much stronger engagement with knowledge intensive advisory services than their counterparts in regional Victoria. The demand side analysis also includes a quantitative component, which is exploratory in nature owing to data limitations. It considers how innovation outcomes in manufacturing change with increasing distance from key Advanced Business Service centres. Innovation outcomes are proxied by variations in manufacturing worker wages. These results are also consistent with the hypothesis of distance deterioration in the innovation role of Advanced Business Services.

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