Innovation and Regional Absorptive Capacity: the Labour Market Dimension

This paper tests how the labour market characteristics of European regions shape regional absorptive capacity (RACAP), and regions’ ability to assimilate knowledge from public and externally-conducted R&D. In particular, we aim to establish whether labour market aspects of RACAP are more important for innovation in prosperous or lagging regions of the EU. Using European Innovation Scoreboard data, we estimate a RACAP-augmented regional innovation production function for 105 EU regions. Results indicate that there clearly are absorptive capacity effects on innovation arising from labour market influences at the regional level, and that the different organisational and individual RACAP effects are heavily contingent on regional characteristics. One of the key specific findings is that there is evidence of overinvestment in tertiary education among prosperous EU regions, while lessfavoured regions are more likely to improve their absorptive capacity by investing in lifelong learning rather than in tertiary education. Acknowledgements: We are grateful for useful comments from participants in the 34 Regional Studies Association International British and Irish Section Congress, Cork, August 2004.