The Knowledge-Innovation Nexus. Its Spatially Differentiated Returns to Innovation

Innovative activities have been long considered as a predominant urban phenomenon suggesting that the innovative capacity of a region highly depends on its urbanization level. This paper tests empirically this statement by studying the impact of knowledge on innovation in 262 regions of the European Union, ranked according to their degree of urbanization. Based on an original database encompassing several knowledge and innovation indicators, and a regional typology and ranking of city regions, the paper shows that when the source of innovation is formal knowledge (i.e., R&D), the benefits accruing from innovation are spatially rather selective and concentrated in first-rank city regions. On the contrary, when the source of innovation is qualified human capital, the innovation advantages are more diffused and penetrate also in second- and third-rank city regions. Moreover, innovative activities aimed at introducing new products require a more balanced mix of R&D and human capital inputs whereas innovative activities aimed at introducing new processes tend to be relatively more human capital intensive.