Thank you to everyone for you participation and generous sharing of insights. I have learned so much from so many of you and I want to express my gratitude. So thank you!
Some additional papers:
"Clusters of Entrepreneurship and Innovation"
"What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns" American Economic Review (2010).
"Innovation Lessons from the 1930's" McKinsey Quarterly(2008).
"Measuring Innovation: A New Perspective" OECD Report on Innovation Strategy (2010). (not insightful, but has stats on the EU)