Heterogeneous Impact of Innovation on Economic Development: Evidence from EU Regions

Abstract

This paper investigates the heterogeneous impact of innovation on economic development across European Union (EU) regions, with a focus on regional competitiveness driven by innovation-based capabilities. While innovation is a key driver of economic growth, its effects are not uniformly distributed. Using the Multiscale Geographically Weighted Regression models, the study examines how different dimensions of innovation (technological readiness, business sophistication, and overall innovation capacity) affect regional GDP per capita. The results show that regions with higher innovation-based competitiveness generally achieve higher income levels. However, the impact of innovation is spatially uneven. While core EU regions (particularly, in Northern and Western Europe) benefit more strongly from innovation, peripheral regions (in Southern and Eastern Europe) often experience weaker and in some cases even negative, effects. These results highlight the importance of accounting for spatial variation when designing innovation and cohesion policies. The paper calls for tailored, place-based strategies to address regional disparities in innovation-driven development and suggests that current EU policies should be adjusted to better support lagging regions.