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Regional innovation policy and multi-level governance in developing countries José Guimón Department of Development Economics Universidad Autónoma de Madrid,

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Presentation on theme: "Regional innovation policy and multi-level governance in developing countries José Guimón Department of Development Economics Universidad Autónoma de Madrid,"— Presentation transcript:

1 Regional innovation policy and multi-level governance in developing countries José Guimón Department of Development Economics Universidad Autónoma de Madrid, Spain

2 Presentation outline 1.Conceptual background and global trends 2.Advantages and risks of decentralization 3.Closing cross-regional income gaps through innovation 4.Division of responsibilities between levels of government 5.Mechanisms for national-regional coordination 6.Conclusions

3 1. Conceptual background and global trends

4 Regional innovation systems “Despite continued predictions of ‘the end of geography’, regions are becoming more important nodes of economic and technological organization in this new age of global, knowledge-intensive capitalism.” Florida, R. (1995) “Toward the learning region.” Futures, 27, p. 528 Theories on ‘regional innovation systems’ as intellectual anchoring for decentralization of innovation policy Industrial districts and clusters Regional policy necessary to foster “agglomeration effects” and “interactive learning” Bringing scientific knowledge closer to local industrial needs

5 Multi-level governance  Innovation policy as a complex, multi-level, multi-actor domain  Relevant levels: Vertical (local-regional-national-multilateral) Horizontal (across different ministries and agencies) Public-private Regional-national levels are interdependent and complementary

6 Smart Specialization  Concentrating resources in a limited set of priority areas that are clearly aligned with regional strengths and competitive advantages  Beyond industrial targeting, priority areas can be “activities” or “key enabling technologies” cutting across several industries Activities: e.g. advanced manufacturing, clean energy, e-health, research labs, design, headquarter functions Key enabling technologies (KET): e.g. ICT, nanotech, biotech, etc.  RIS3 policy framework in the European Union Regional strategies as ex-ante conditionality to receive EU funding Applicable in developing countries?

7 IPP Hot Topic

8 Note: data from a 2009 survey to 15 OECD members. This indicator is only available for the 7 countries shown Source: Based on OECD, 2011 “Regions and Innovation Policy” Regional share of public R&D expenditure Large differences across countries

9 Trends in developing countries  Developing countries have adopted regional innovation policy strategies more recently than developed countries Lower levels of investment in R&D and innovation Higher need to build critical mass Higher levels of diversity, income inequality, and institutional weakness  Since the 1990s large emerging countries have decentralized further science and innovation policy e.g. China, Brazil, Russia, India  In Latin America this has become a hot topic in recent years, in countries like Brazil, Mexico, Colombia and Chile  In Africa decentralization of innovation policy is at its infancy, but some initiatives with regional scope have emerged e.g. Cape IT Initiative (Western Cape, South Africa, 1998) e.g. Innovation Cities program (Morocco, 2011)

10 2. Advantages and risks of decentralization of innovation policy

11 Risks of decentralization  Wasteful duplications, fragmentation of public investments in R&D, implemented separately and uncoordinated in different regions Need for critical mass in STI Risk of “cathedrals in the desert” syndrome  Central level necessary to coordinate a national R&D agenda and to fill gaps in regional strategies Risk of public value failures because of gaps in the STI agenda of the regions (e.g. if no region wants to specialize in tropical medicine but it is considered necessary at national level)  Proliferation of public support programs can result in higher transaction costs, bureaucracy and complications for target firms

12 Advantages of decentralization  Because they are “close to the ground”, regional governments may be better placed to identify opportunities and mobilize their knowledge bases  Decentralization may promote a process of bottom-up discovery of national technological strengths and priorities by bringing together regional strategies  Decentralization may promote a healthy competition among regions that stimulates aggregate innovation performance  Decentralization may reduce the technology gap between regions

13 3. Closing cross-regional income gaps through regional innovation policy

14 The geographic concentration of innovation  Distribution of national R&D efforts is often concentrated in a few regions e.g. In Colombia 2 of 32 departments account for 70% of gross expenditure in R&D (Bogota and Antioquia) e.g. In Spain 3 of 17 regions account for 60% of R&D expenditure (Madrid, Catalonia and Basque Country)  Regional imbalances within a country are difficult to overcome Cumulative nature of technological capabilities Economies of scale and indivisibilities Critical mass  Positive link between innovation and economic growth implies that in order to close income gaps across regions, policies should seek to close innovation gaps

15 Source OECD, 2011 Innovative regions outpace national average

16 Trade-off between excellence and cohesion?  Policymakers need to balance two objectives: Promoting scientific excellence through regional competition and concentrating resources in the core regions Encouraging convergence and equality among regions by nurturing lagging regions (Link between innovation and economic convergence)  Excellence programs and performance-based funding lead to higher concentration of resources in core regions  “Regional innovation paradox” (Oughton et al. 2002) Comparatively greater need to spend resources on innovation in lagging regions but relatively lower capacity to absorb public funds Importance of capacity building and inter-regional collaboration

17 A policy challenge in Russia…  Large heterogeneity in income levels and innovation capacities across its 83 regions (or “federal subjects”)  Trend towards concentration of STI resources in core regions R&D funding allocation system continues shifting from block funding based on soviet-era central planning decisions towards a competitive, project- based R&D funding system 2012 Cluster Initiative: central government provides matching funds to the most promising and technologically advanced regional clusters  At the same time, policy programs to support backward regions Federal Strategy of Diminishing Disparities Between Regions Until 2015 Council for Research for Productive Forces has developed four new programs targeting innovation in less developed regions

18 …and also in China  Fiscal decentralization in China has been accompanied by significant increases in regional inequality (Qiao et al. 2008).  Central government trying to revert mounting income inequalities across regions by providing more support to innovation in backward regions  e.g. Revitalization Plan for Higher Education Institutes in Mid- and Western China (2012-2020) funds R&D projects in order to strengthen universities in less developed regions.

19 4. Division of responsibilities between levels of government

20 Asymmetric decentralization across policy instruments  The degree and mode of decentralization depend on the type of policy instrument  Some innovation policy instruments are best provided at the national level, while in other cases it makes more sense to decentralize

21 National/regional scope of innovation policy intervention More often nationalMore often regional Mode of innovationKnowledge generationKnowledge diffusion and exploitation Target groups Public research labs, universities, large firms Small firms, startups, spinoffs InfrastructureUniversities, public R&D labs Incubators, science parks, special economic zones, technology transfer offices RegulationsIntellectual property rights Building permits, infrastructure development Economic transfers Tax deductions, large grants to new R&D projects Smaller grants to fund business innovation Soft instruments Standardization, codes of conduct Networking and brokerage services Human capital Higher level education, postgraduate scholarships Technical training, lifelong learning, internships Linkages International linkages, scientific collaboration Public-private partnerships, cluster development

22 Large overlap in the kind of policy instruments used Number of instruments used by national and regional governments, and common instruments (Source OECD, 2011, p. 121)

23 Smart vs. stupid overlap  Overlapping national-regional policy instruments creates synergies if both levels complement each other Complementarity in the way policy instruments are structured (target actors, eligibility criteria, etc.) Joint-programming and co-financing of policy instruments Information sharing and dissemination at regional and national level  Overlapping national-regional policy instruments is negative if it creates redundancies Lack of awareness of the instruments developed at another level of government Failure to distinguish between target groups or topics in the instruments offered Increase in complexity and bureaucracy for potential beneficiaries of public support (firms, research institutions, etc.).

24 Regions as targets of national policy instruments  Shift towards national innovation programs where beneficiaries are regions rather than firms or universities directly  Example: Competitive regional cluster initiatives policy-approaches-oecd-reviews-regional-innovation

25 5. Mechanisms for national-regional coordination

26 National-regional coordination  Coordination should be fostered at all stages of the policy cycle Agenda-setting processes (e.g. high level policy councils) Design and implementation (e.g. joint programming, joint funding) Evaluation (e.g. information sharing and reporting)  Instruments of co-ordination can be based on regulation, incentives, norms and information High level policy councils, regional development agencies, territorial representatives National-regional contracts for joint programming and co-financing Excellence programs, cluster initiatives, smart specialization strategies Capacity building, guidelines

27 New regional innovation agencies in Chile  National innovation agency (CORFO) is establishing regional offices across 15 regions, since 2014  They will have high levels of autonomy and will depend on regional governments  CORFO is providing capacity building support to regional governments  “Smart specialization program” to support the development of clusters throughout the regions

28 Ruta N, Medellin  Created by Medellin City Council in 2009  Financed through a 7% levy on the annual profits of EPM  To implement the City’s new STI Plan (2011-2021) aimed at becoming “the innovation capital of Latin America”  Among other initiatives, it leads the development of the new Medellinnovation District

29 Colombia’s new Royalties Fund for STI  Since 2012, new Fund for STI with 10% of national royalties from mineral resources (around US$500 million per year)  Distributed to regions based on their population and income levels (redistributive effect)  Administered by Colciencias (national R&D funding agency), but projects are selected by regional governments  Less advanced regions receive a larger part of the funds, but they lack the absorptive capacity required to design and develop the right kind of projects to promote innovation  Colciencias has established an Office of Regionalization that has supported so far the drafting of 27 regional development plans for STI  Lack of collaboration between regions, fragmentation, duplications

30 Mixed Funds, Mexico  Jointly established in 2002 by the central and regional governments as a trust fund for science and innovation projects  The objective is to foster innovation capacity at regional level and to better articulate federal and regional support for innovation.  Each fund has its own technical committee and evaluation commission to issue calls for proposals and select projects for funding within their respective regions  As of 2013, more than 35 mixed funds had been established across the Mexican States and also in some municipalities (Ciudad Juarez, La Paz, Puebla)  Total budget for the 2001-2012 period was $US 580 million (45% regional and 55 % national)

31 6. Conclusions

32 Rethinking the role of national innovation policy in an increasingly decentralized landscape  Shift in orientation of central governments from control to facilitation, capacity building and support  Promoting a bottom-up, participative approach while ensuring coherence of regional innovation strategies, searching for economies of scale and reducing fragmentation  Managing the trade-off between efficiency/excellence and regional convergence/equality  Building flexible governance systems that allow for an asymmetric decentralization across regions and across policy instruments  Decentralization and the associated institutional reforms should be sequential, in tandem with the development of regional capacities

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