Annex E. European national innovation trends

More general trends in non-patent-related innovations are explored using the EU Community Innovation Survey’s most recent iteration in 2014. Because of the lack of availability of data on a subnational level, all analysis is conducted on a national level, splitting countries with relative shares of rural populations. This limitation does not permit a full territorial analysis using self-reported measures of innovation; however, it provides a general outlook of what is observed on the aggregate level.

Most firms do not innovate but when they do, they tend to have innovations that are new to the firm but not necessarily to the market. When firms do innovate, most innovations are introductions of new products or processes into the production cycle of the firm. In comparison, only 9% of firms introduce new innovations to the market (Figure A E.1).

While more innovations occur in the manufacturing sector, the share of total innovative firms within each sector is higher for ICT firms (Figure A E.2). In countries with relatively larger rural populations, innovative ICT and manufacturing sectors have relatively higher shares of the economy as compared to countries with a very low share of the rural population. The evidence demonstrated is in line with the observations on the sectoral component of innovation. Manufacturing firms have a production cycle that may more easily incorporate changes, whereas long-standing and traditional industries that dominate much of the economy in rural regions may not necessarily have the same demand for innovation.

Interestingly, in areas with a relatively higher share of rural populations, there is a higher share of innovative firms that provide public services such as education, health, community services and public administrative support services. To some extent, this may reflect different types of entrepreneurship that have a social purpose.

Innovation is associated with high-growth firms, however, on a country level, the trend is not linear.1 In Figure A E.3, the association between the share of the rural population and the average growth in turnover for innovating firms is positive. Analysing the characteristics of high-growth firms is insightful for understanding longer-term payoffs from innovation and its adoption and diffusion in competitive settings. Data from European countries show that the sectors with the highest share of high-growth firms are in the ICT and services sector2 while Figure A E.4 also demonstrates that many of the countries with high shares of innovative ICT and manufacturing sectors are located in economies with larger rural shares.


← 1. According to the data from the EU Community Innovation Survey, there is no significant correlation between innovation undertaken and higher firm growth in the same year. There is moreover no data available for understanding if innovation is correlated with high growth in subsequent years. In this simple regression, controls were included for percentage of rural populations within countries and country and sector fixed effects.

← 2. High-growth firms are defined as firms with growth in the top quartile of firm turnover in the distribution of firms within each country and sector.

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