When Innovation Does Not Pay Off: Introducing the “European Regional Paradox”

Abstract

In the last few decades, innovation has been widely recognized to be the engine of wealth and prosperity as it intensifies competition and increases productivity, which both in turn lead to significant economic benefits such as higher income per capita and increased employment. However, empirical evidence in this article illustrates that innovation seems not to have paid-off for some of the most innovative regions in Europe, as these regions, despite being highly innovative, grow at a slower pace than their national counterparts, as well as presenting poor economic outcomes such as low income per capita and high unemployment rates. The aim of this article is to communicate this intriguing observation to both innovation scholars and to policy-makers, since its very existence seems to cast doubt not only on one of the most principal assumptions in the field of innovation studies (i.e. innovation as the engine of growth) but also on one of the most fundamental pillars currently underpinning several regional, national and supranational economic policies.

Acknowledgements

The author thanks two anonymous referees of this journal for commenting on an earlier version of this article. Heartfelt thanks to Seval Dogan for her inspiring comments and support. Finally, the author retains sole responsibility for any remaining errors and omissions.

Notes

(a) The ERIS is the official instrument for measuring regional innovation performance in the European Union (EU). Since its first publication, it has been an important tool for economic policy-making, as it provides “… statistical facts on regions’ innovation performance” that can help “… regional policy makers design and monitor innovation policies” (Hollanders et al., 2009, p. 2). Social scientists have also shown interest in it, although for different reasons than policy-makers. For example, some employ data from it (Fragkandreas, 2011), others refer to it (see, e.g. Brenner & Broekel, 2011; Huggins, 2009; Mairesse & Mohnen, 2010; Navarro et al., 2009), while others criticize its methodological underpinnings and implications (Schibany & Strither, 2008).

(b) The ERIS defines regions according to the Nomenclature of Territorial Units for Statistics (NUTS) classification at 3-digit (i.e. NUTS1) and 4-digit level (i.e. NUTS2). NUTS 1 stands for “major socio-economic regions” with a population between 3 and 7 millions, while NUTS 2 stands for “basic regions for the application of regional policies” with a population between 800,000 and 3 millions (for more details visit http://epp.eurostat.ec.europa.eu/portal/page/portal/nuts_nomenclature/introduction). The main criterion for using either of these categories in the ERIS is data availability.

(c) The ERIS employs data mostly from the Eurostat and the Community Innovation Survey (CIS).

(d) The ERIS uses a wide variety of indicators in measuring innovation performance. This includes “traditional” indicators such as research and development (R&D) expenditure as a percentage of regional Gross Domestic Product (GDP) and patents’ applications to European Patenting Office (per million of population) as well as more “contemporary” indicators such as population with tertiary education, human resources in science and technology, employment in medium and high-tech manufacturing and services. From these indicators, a synthetic composite indicator is created which measures the innovativeness of regions. More information about the methodology of ERIS can be found at http://www.proinno-europe.eu/sites/default/files/page/10/03/RIS_2009_Methodology_report.pdf

(e) The 2003 and 2009 versions include several different indicators from the Community Innovation Survey (for a review, see ERIS, 2009, pp. 7–8). However, these indicators do not seem to have significant effect on the rankings, as “regional performance appears relatively stable since 2004” (ERIS, 2009, p. 4).

Perhaps, the term regional innovation paradox is more suitable for describing the observation that innovation does not seem to pay-off in some of the most innovative regions in Europe. However, this term has been used by Oughton et al. (2002, p. 98) to describe the inability of lagging regions in Europe to absorb and invest public funds effectively for the promotion of innovation in an increasingly globalized innovation-driven economy.

The author would like to thank an anonymous referee of this journal for pointing this out.