Is R&D investment in lagging areas of Europe worthwhile? Theory and empirical evidence

Abstract.

Is R&D investment in lagging areas worthwhile? There is no simple answer, nor is there universal theoretical agreement on the question. The Schumpeterian strand of the endogenous growth approach highlights the advantages of spatially concentrating the research and development (R&D) effort in a few areas, in order to maximise external economies and technological spillovers. Innovation is then expected to spill over from these technologically advanced areas into neighbouring regions . The neoclassical view, in contrast, considers that decreasing returns render investment in core areas increasingly less efficient, and makes investment in peripheries more effective. The regional policy view holds that public investment in R&D in lagging regions triggers economic convergence, because it limits congestion in the centre, helps to keep talent, and generates spin-offs in lagging areas. This article surveys these strands and highlights the advantages and disadvantages of investing in R& ;D in lagging regions. I then turn to the evolution of R&D investment across regions in Western Europe.