No 2016/26 Innovation Policies and New Regional Growth Paths

A place-based system failure framework

Abstract

Regional economies are increasingly facing the challenge to renew their economic structures and generate innovations that break existing development paths. This calls for new innovation policy approaches that are well equipped to foster the modernisation of existing industries and nurture the development of new ones. The aim of this chapter is to provide a comprehensive place-based system failure framework for an innovation policy design that is suitable to initiate and support economic renewal processes in different region-specific contexts. Our framework rests on three pillars. The first one draws a distinction between barriers that relate to rigidities of the current industrial, knowledge and institutional structures on the one hand and impediments that hinder the emergence of new development paths on the other hand. The second conceptual cornerstone differentiates between various forms of new path development, namely path upgrading, modernization, branching, importation and new path creation. Third, to capture varying regional characteristics, we distinguish between thin, thick and specialised and thick and diversified regions. Our conceptual discussion demonstrates that each region type suffers from particular combinations of barriers to structural change. This offers a sound basis for assessing which types of new path development are most likely to occur in thin, thick and specialised and thick and diversified regions and for identifying promising policy approaches to fashion regional structural change in various regional contexts.