Does Connectivity Impact Innovation Performance in Rural Regions?

There is a broad consensus in the literature in that R&D is a precondition for innovation and in turn, for economic growth. On the regional level, this implies that regions with a high stock of R&D should reveal better results when it comes to economic performance. This presumption has lead policy-makers to focus especially on strengthening the regional stock of R&D as an instrument to foster the regional innovation performance. However, the relation between regional R&D and economic growth may not be as straightforward and an exclusive concentration on R&D may not be appropriate for stimulating regional innovation. Thus, empirical evidence shows that some regions perform well in economic terms, irrespective of their relatively low values of R&D. One of these regions is the German region of Lower Bavaria. This region performs well above the German average in terms of economic growth and employment. At the same time, the regional performance on the traditional R&D indicators as patents or the share of human resources in science and technology is below average. Yet, despite the disadvantageous values on the latter, a recent study of regional firms has indicated that over 60% have introduced either a technological or non-technological innovation in the past three years. One explanation for this contra-intuitive finding emerges from the potential connectivity of regional firms, enabling them to acquire R&D from external knowledge sources. This aspect is in focus of this paper. Thus, based on original firm-level data, we investigate how connectivity impacts innovation performance of firms in the low R&D region of Lower Bavaria. The idea that innovation is a result of an interactive process and that firms have to acquire external knowledge in order to innovate is certainly not new. However, despite the fact that regional connectivity especially of low R&D regions has gained considerable importance, not at least reflected by the current EU innovation policy debate, there are only a few studies that assess the association between cooperation and innovation in regions with low internal R&D in a systematic, quantitative manner. Rather, the majority of studies focus on high-tech regions with strong initial R&D. With the emphasis on a rural region with mainly low- and medium-tech industries, this paper aims to bridge this gap and to study the relation in a type of region that has not been comprehensively examined, yet. Moreover, by distinguishing between the geographical and functional dimension of cooperation as well as by the consideration of both, technological and non-technological forms of innovation, we provide a more encompassing view on how firms in this type of regions use cooperation to increase their innovation potential.