Innovation, heterogeneous firms and the region

Are there important differences in innovation and in R&D collaboration activities across Spanish regions?

It is observed that the share of innovative firms (in product and in process) varies substantially between regions, as it does the measures of firm’s absorptive capacity (performing continuous R&D activities, cooperate in innovation and employ high-skilled labour) and the external factors (GERD which is the share of the region’s gross expenditures in R&D on GDP, the percentage of population living in urban areas, the availability of highly educated workers, and the GDP per capita). Absorptive capacity, as measured by the three indicators, seems to be more abundant in regions in which the proportion of innovative firms is high, whereas it is scarce in those with low numbers of innovative firms. The share of firms performing R&D activities continuously is between one quarter and one third in Catalonia, the Basque Country, and Madrid, which is far beyond the numbers in low innovative regions (less and about 10 per cent). Similar disparities are observed as regard the proportion of firms that cooperate in innovation activities, whereas figures for the average share of highly skilled workers reveal that this type of labour is much more frequent in firms located in regions at the top of the innovation ranking; the opposite being also true. Overall, these figures suggest that regions differ sharply in the characteristics of their firms’ population, in particular with respect to those that determine the firm’s absorptive capacity. They also confirm, at the aggregate level, the positive relationship between absorptive capacity in general, and cooperation in particular, and innovation.

Do environmental factors related to innovation differ across regions?

 We also confirm the existence of outstanding regional disparities in the environmental factors that have been told to affect firm’s innovation. Once again, R&D intensity is much higher in regions with a large share of innovative firms. Regions also differ as regard urban population and the endowment of human capital. However, the relationship with the share of innovative firms is not as clear for these magnitudes. For instance, the share of urban population in Catalonia, which is the region with the largest share of innovative firms, is below that in some regions with a much lower share of innovative firms (e.g. Asturias and Murcia). Similarly, the value of the measure of human capital in Catalonia is similar and even below that in less innovative regions (e.g. Aragon and Castile Leon). Finally, the per capita GDP figures reproduce the well-known regional disparities in productivity and income per capita in Spain. They are supposed to capture the effect of other external determinants of innovation that are not accounted for by the other three indicators.

Does the effect of cooperation activities vary across regions?

Estimates for the empirical model that accounts for the internal and external determinants of product innovation, including the interaction between the two, indicates that cooperation is a crucial element for the success of activities aiming at innovating in product in all firms. But it is more important for firms located in regions with a weak system of innovation than for those in regions characterised by a favourable R&D environment. As a matter of example, the probability of innovating in product is almost six times higher in the firms that cooperate and locate in the region with the lowest R&D effort (Balearic Isl.), while it is 2.75 times higher in the region with the highest (Madrid).

As for the results of process innovation, the gap in the probability to innovate in process between firms that cooperate and those that do not varies with the region’s R&D effort, being wider in regions in which the R&D environment is less favourable. This means that cooperating in technological activities is important when explaining innovation in process, but it seems to be crucial for firms located in regions in which the aggregate R&D effort is low.

The effect exerted by the level of R&D expenditures in the region on the impact of cooperation on product and process innovation is summarised by the figure below: stimulating technological cooperation could be an effective way of improving the innovation output in firms located in less favoured regions.

Effect of firm’s technological cooperation depending on the R&D effort of the region

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