Innovation and Regional Growth in the European Union

Over the past three decades technological change has not only been the single most important force behind the process of economic growth but it has also enabled the “widening, deepening and speeding up of worldwide interconnectedness in all aspects of contemporary social life, from the cultural to the criminal, the financial to the spiritual” (Held et al. 1999: 2) that may be referred to as globalization. The progressive liberalisation of the movements of capital and labour, the sharp reduction in the cost of international and intercontinental travel, as well as the purportedly progressive convergence towards “global” cultural models, and, above all, the frictionless availability of information seem to suggest an ever-decreasing influence of both physical distance and the underlying contextual conditions upon economic interactions. Faster and cheaper access to information and technology has also led to a restructuring of how we conduct business all over the world and contributed to dismantle the barriers that anchored economic activity to specific locations. At a first superficial look the consequence of all these changes seems to be a world where neither the distance between the economic actors, nor the contextual condition in which their interactions take place would matter any longer; a world where information “once available only to the few would be available to the many, instantly and (in terms of distribution costs) inexpensively” (Cairncross 1997: 4); a world where every economy has a similar chance of exploiting and maximizing the opportunities of global interaction, regardless of its geographical location and its indigenous conditions. In brief, a world where more and more people are empowered by this access to information and become more conscious of the need to engage and compete as individuals in an integrated world.

Technological change seems to be making innovation not only more “globalised” but also more “territorially-specific”. Innovation relies on “global” knowledge flows of formal codified knowledge, but as these flows become progressively easier to access and exchange, the territorial aspect of innovation and learning has become a key resource in competitive advantage. In order to understand this process, however, it is necessary to reconsider the linear model of innovation. As we will discuss in this chapter, innovation is a collective learning and socially embedded process that is crucially dependent on tacit knowledge and “untraded interdependencies”. Consequently a dialectical linkage has been established between innovation and space. While territories, with their social, cultural and institutional realm, are crucial for successful innovation, innovation is in turn a key source of competitive advantage for territories and regions. However, different streams of literature have shed light upon specific factors and “conditions” involved in the process without bringing them together in an analytical model.

This chapter performs a preliminary empirical exploration of the key conceptual links developed in Chap. 2. It looks at the relationship between innovation and regional growth by means of an empirical model that explicitly accounts for the impact of spatially mediated processes (geography) and place-specific socio-institutional conditions. The cross-sectional analysis, covering the EU-25 regions, sheds light on how regional innovative activities influence differential regional growth patterns. The thrust of the analysis will be to examine how geographical accessibility and human capital accumulation, by shaping the regional system of innovation, interact with local innovative activities, thereby enhancing (or impeding) economic growth. The analysis will support the idea that an increase in innovative effort is not, per se, necessarily or likely to produce the same effect in all EU-25 regions (as the linear model would predict), whereas geography, together with human capital accumulation, does, on the contrary, influence this relationship and shall be shown to do so. This will constitute the first empirical confirmation for the theoretical hypotheses developed in the previous chapter, and which will be further analysed in Chaps. 4 and 5 with a more in depth treatment of respectively systems of innovation conditions and geography.

The exploratory analysis pursued in Chap. 3 has shown that the economic success of EU regions in an innovation-based model of sustainable economic growth depends on their capability to produce and access innovation. The uneven geographical distribution of R&D activities has been shown to be a localised source of competitive advantage for some areas rather than others.

The empirical evidence produced in Chap.​ 4 has suggested that not only innovative activities pursued locally affect regional economic performance but also those pursued in neighbouring regions play a positive and significant effect. On the basis of this evidence we analysed how different indigenous socio-economic conditions may result in a differential capability to translate exogenously produced knowledge into regional growth. In this chapter, by building upon the analysis pursued so far, we focus our attention on the spatial extent of such knowledge spillovers. In other words we aim at assessing if knowledge spillovers tend to decay with distance and to what extent.

In the first part of this book we have shown how different streams of literature – the linear model, the systems of innovation approach and the geographical analysis of the diffusion of knowledge spillovers – can be effectively combined into an “integrated” analytical framework, providing us with a more complex and perhaps realistic view on the territorial determinants of innovation and economic growth. This chapter is aimed, on the one hand, at further developing the “integrated framework” discussed so far by explicitly including into the picture specialisation and agglomeration processes and, on the other hand, at using this framework as a “common ground” to compare the drivers of innovation (and their geography) in Europe and in the United States.

Previous chapters have been devoted to the development of a consistent framework for the analysis of regional growth dynamics. Innovation has been identified as the key engine of regional growth. However, the linear approach to the analysis of the translation of innovation into economic growth has been progressively broadened in order to explicitly take into account institutional and geographical factors. The empirical analyses that tested this “integrated” model for the genesis of regional growth confirmed its explanatory power and shed new light on the drivers of regional growth in Europe. In addition Chap.​ 6 showed how an “integrated” approach can be successfully applied to the comparative analysis of regional innovative dynamics in Europe and the United States.

The empirical evidence presented in the previous chapters has highlighted the importance of underlying socio-economic factors in translating innovation into economic growth. The analysis showed that this is true for both endogenously produced innovation (by means of local innovative efforts) and exogenous knowledge flows. This evidence suggests that the locational disadvantage of peripheral regions (mainly due to the reduced exposition to knowledge flows) may be compensated for by reinforcing their capability to translate existing knowledge into economic growth. The empirical analysis showed that this result could be achieved by addressing the local sources of socio-economic disadvantage. When the socio-economic sources of competitive disadvantage are effectively addressed, the capability to translate whatever kind of innovation into regional growth is enhanced.

This book has focused on the relationship between innovation and regional growth in order to uncover the features (related to both physical space and the socio-economic realm) that have enabled some areas to benefit more than others from the process of globalisation and technological change. In this perspective the objective of this work has been to analyse the role of geography (accessibility) and socio-economic conditions (social filter) in the translation of innovative efforts into regional economic growth.