Innovation activity is hugely determined by regional factors

Innovation is a crucial driver for economic development at the national but also at the regional level. At the same time, the level of innovation activity is marked by huge regional differences. In the Netherlands, for example, in the NUTS3-region South-East North Brabant there were 243 patents per 100,000 inhabitants in 2014 while there were only 3 patents per 100,000 inhabitants for the NUTS3-region Overig Zeeland.

 

Regional differences are also pronounced within Germany. The tv report and the related online news article deals with the pattern that innovation activity In Eastern regions of Germany is particularly low as compared to the western part of the country. In the tv report, I talk about reasons for regional differences in innovation activity in Germany and explain why most East German regions are lagging behind. To start with, East Germany faced massive structural challenges in the 1990s after German re-unification and the transition from a centrally planned toward a market economy system. The transition process came along with a lot of company closures and high unemployment rates. The negative economic framework conditions also affected the innovative potential of the region. For example, at least 25 percent of all inventors listed on a patent filed in the former GDR migrated to West Germany. The closure of companies and the brain-drain implied a breakdown of knowledge and innovation networks. Since networks promote knowledge exchange which is important for the emergence of new knowledge as a basis for innovation, there was a sharp decline in innovation activity. Another reason for the weak level of innovation activities is that there are only few innovative and successful small and medium sized enterprises in East Germany while larger firms are often only subsidiaries of West German or international companies without any significant R&D-activity conducted in the region.

 

There are some general lessons that can be learned from the German case. Regions that face severe structural challenges due to changes and shocks in the external environment- like the northern provinces of the Netherlands over energy transition – may experience significant losses to the regional knowledge base due to out-migration of qualified labor and the breakdown of regional knowledge networks. This may negatively impact on the regional innovation potential. Similarly, a regional policy that aims at attracting external companies to boost innovation performance may be not that successful. We know from the East German experience that attracting subsidiaries from other regions or countries yields economic activities that require relatively low knowledge input while R&D and economic decisions are made elsewhere namely in the source regions of the investing companies. Furthermore, externally attracted firms are often not integrated into local economic network structures and therefore they hardly contribute to the development of the regionally embedded knowledge base. A policy interested in fostering innovation and entrepreneurship should be rather focus on promoting endogenous resources for regional development like high-tech start-ups by people being socially and economically embedded in the region. This was neglected in East Germany for too long implying a lack of a vibrant SME sector today even 30 years after German re-unification. Other regions challenged by significant changes in the external environment – like eventually the northern provinces of the Netherlands over energy transition - should learn from this experience.

Link to the video (tv report MDR Umschau 14 Jan 2020 „Das letzte Patent der DDR“)

Want to know more? Don’t hesitate to contact the author of this post:
Michael Wyrwich m.wyrwich rug.nl