Attracting innovative firms to peripheral regions

Several attempts have been made across the world to try to attract firms (and particularly innovative, knowledge-intensive ones) to peripheral regions, including the ones presented below. In order to make those initiatives successful in the long term and avoid the attraction of “footloose” industries (economic activities not tied to specific locations), adequate regional framework conditions for innovation are needed. Investments in human capital and infrastructures are often critical.

Challenges in making these types of policy schemes work are large; there is scant high-quality evaluation evidence on the impacts of these policies to identify which conditions matter for success (Warwick and Nolan, 2014). 

(1) Technology parks

In Korea, technoparks have been built to address the gap between the metropolitan area of Seoul and other more peripheral regions. Technology park development includes the construction of infrastructure (e.g. common business support facilities, incubators), locatingof research centres and universities to increase the pool of human capital and promote R&D, implementation of networking programmes and incentives for joint R&D projects, and the provision of finance for tech-based SMEs and start-ups, including through venture and seed capital. 

(2) Special Economic Zones

In Mexico, the establishment of special economic zones in four lagging regions of the country’s south is under way, with the objective of bridging the gap with other regions in Mexico. Measures to attract foreign investments include fiscal incentives to firms investing and creating jobs in those areas,  and investments in the local infrastructure and human capital. 

(3) Grants to promote business R&D in peripheral regions

For example, to bridge the gap between the centre and the periphery, the government of Israel implemented a programme that provides grants to co-finance R&D expenses of large firms’ R&D centres that relocate in the periphery, for a period of two to three years. The funding model offers government participation in the risks involved in establishing the R&D centre. Eligible costs covered by the grant are equipment, external expertise (consultants, studies, etc.) and labour costs (including overheads).

Technoparks – Korea

1997-present

Objective: Provide infrastructures and managerial and technical support to firms located in peripheral regions to reduce the gap between the Seoul area and others.

Target: Peripheral regions.

Instrument: Development of technology parks (eighteen are currently in operation). 

Special Economic Zones – Mexico

2012-2014

Objective: Foster economic development in three lagging regions in the south of Mexico.

Target: Peripheral regions (three lagging regions in southern Mexico).

Instrument: Establishment of three special economic zones in which firms investing and creating jobs would obtain certain benefits.

Large companies’ R&D Centres in Israel’s Periphery programme – Israel

2012-2014

Objective: Encourage large companies to establish R&D centres in lagging regions in order to narrow the gap with Central Israel.

Target: Large leading R&D-investing companies.

Instrument: Grants supporting R&D expenses of R&D centres created in peripheral regions for 24-36 months..

References

Warwick, K. and A. Nolan  (2014), "Evaluation of Industrial Policy: Methodological Issues and Policy Lessons", OECD Science, Technology and Industry Policy Papers, No. 16, OECD Publishing, Paris, http://dx.doi.org/10.1787/5jz181jh0j5k-en.