An empirical test of the regional innovation paradox: can smart specialisation overcome the paradox in Central and Eastern Europe?

Abstract

The regional innovation paradox is the greater need of lagging regions to invest in innovation and their relatively lower capacity to absorb funding compared to more advanced regions. Using data on regional public spending, industry composition and economic performance, we test empirically whether there is a differential impact of European funding on regional economic growth between Eastern and Western European regions. We conclude that the paradox is proven and consider the extent to which smart specialisation strategies may help to improve the quality of governance of regional innovation systems.

Keywords:

• regional innovation systems
• smart specialisation
• Eastern Europe
• European funding

JEL Classifications:

• O18
• O31
• O38
• R11
• R58

Notes

1. EE countries are: the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovenia and Slovakia.

2. Available at: http://www.doingbusiness.org.

3. The nine topics covered by the indicator are: dealing with construction permits; enforcing contracts; getting credit; paying taxes; protecting investors; registering property; resolving insolvency; starting a business; trading across borders. The ranking for each topic is the simple average of rankings for each of several component indicators. For example, the ranking for starting a business is the simple average of country rankings on the procedures, time, cost and minimum capital requirements to register a business. Higher values indicate more business-friendly regulations (Djankov, McLiesh, and Ramalho 2006).

4. However, this is partly due to distorted data as those countries could not draw EU funds until 2004.