Understanding the Drivers of Innovation and Productivity across Firms, Regions and Industries in the UK

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Completed
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Summary & aims

Innovation and productivity growth are at the heart of economic policy in the UK. This is becoming clear from their prominent role in the 2021 Plan for Growth, which sets out the importance of innovation to UK prosperity, and highlights the importance of the regional balance of R&D and innovation activity.

The main aims of the project are to investigate what:

  1. The most significant drivers of innovation are in the UK, considering different measures of innovation activity and success, distinguishing between the role of private and public investment in R&D. We analyse differences across UK regions and industries.
  2. The types of innovations that most enhance productivity growth, identifying the most successful regions and industries in translating innovation into productivity benefits.
  3. The relationship between innovation and the inclusiveness of growth across UK regions, exploring whether an uneven distribution of innovation can help to explain some of the persistent and rising inequalities across the country.

 

Methodology

By reviewing the academic literature on these topics, summarising prior contributions and identifying gaps, the project seeks to address these evidence gaps with several novel contributions. A first key contribution of this research project will be the compilation of a comprehensive dataset of innovation activities of UK firms by carefully matching different micro-level datasets made available by the Office for National Statistics (ONS), UK Research and Innovation (UKRI), and the Worldwide Patent Statistical Database (PATSTAT). By exploiting firm level information, and also aggregating the data at the regional and industrial level, a robust empirical investigation of the  main research questions will be undertaken.

Findings and Recommendations

The results of this report highlight the importance of R&D investment and broader innovation activities for stimulating the rate of productivity growth. Private R&D investment is the most relevant, but public R&D support plays an essential role, especially in fostering innovation in the least productive firms and peripheral areas.

Overall, the distribution of innovation and its effect on productivity differ across regions and industries in the UK. Innovation and productivity growth remain increasingly clustered in a few specific areas and industries, mainly the South East and higher-tech sectors, potentially widening the interregional inequality within the UK.

Crucially, we also find that R&D investment and innovation could effectively foster productivity growth in peripheral regions and in lower-tech sectors. These results mean that the UK  government’s R&D strategy needs to be informed by place-based considerations, in order to effectively contribute to the “levelling up” agenda aimed at a fairer and more inclusive economy.

 

Principal Investigator

Co-Investigator

Ana Rincon-Aznar
Principal Economist