The firm or the region: What determines the innovation behavior of European firms?

This paper examines the determinants of innovation behavior in European fir ms that are predominantly small and medium in size. The aim is to assess th e absolute as well as the relative impact on innovation behavior of firm-sp ecific (i.e., internal) factors on the one hand and region-specific charact eristics on the other. Two hypotheses are advanced and tested. The first is that-contrary in part to some recent literature on regional and national i nnovation systems-firm-specific determinants of innovation are more importa nt than either region-specific or external factors. The second hypothesis i s that in high-tech regions dominated by a small number of very large firms the innovation behavior of the smaller firms is more strongly influenced b y regional factors than by factors internal to the firm. Whereas the first hypothesis is confirmed by the empirical results presented here, the second is not. Because firm-level innovation determinants are of great importance in the European regions investigated in this study, we suggest that local innovation policy should focus more on the specific needs of small- and med ium-sized enterprises (SMEs) in particular regions than on improving region al conditions for innovation in general. The analysis is mainly based on da ta from the European Regional Innovation Survey (ERIS) and includes informa tion from more than 8,000 interviews with manufacturing firms, service firm s, and research institutions in 11 European regions. The logit analyses rep orted in this paper used data from some 1,800 manufacturing firms.