Innovation and competitiveness: the regional dimension

This study explores the importance of labour pool and geographical concentration as essential factors that help shape pathways for innovation and influence the speed with which technological change can occur. To do so, we propose an approach based on human capital and the workers’ skills that contribute to innovation. Being able to capture this broader range of professionals is crucial to assess regional innovation in Less Developed Countries, such as Brazil and other Latin American countries, as their productive structure concentrates on lower technological industries and innovative activities not centred on R&D. We created a measure of innovative potential that can be used at different levels of regional disaggregation. We analyze 374 relevant Brazilian Labour Market Areas (LMA), employing data on occupations from the Annual Report of Social Information, from 2003 to 2018. Although innovative activities are heavily concentrated in a few regions, empirical evidence suggests that a shift has occurred since the early 2000s, with lagging regions making progress faster. Nonetheless, our results show that such convergence is still slight, given the distance between the leading and lagging regions’ innovative performance. Factors related to the region’s previous capacities, such as the stock of workers with innovative skills, manufacturing industry share, and the number of large firms have a positive association with innovative activity in a region. Although the convergence in the innovative potential among Brazilian regions, the movement is too slow to indicate a transformation of the country as a whole to levels similar to those of developed nations.