Does public R&D funding reinforce regional disparities? Exploring the changing geography of public and business R&D expenditure in Europe

The concentration of R&D investments in regions with strong local capabilities helps these regions pull further ahead in the innovation economy, driving spatial inequality. While there is growing awareness of this geographic dark side of innovation, the role of public R&D funding has largely been overlooked. Yet, the unintended spatial effects of public R&D funding tend to far outweigh the impacts of regional policy (Sternberg, 1996). Public R&D spending is often concentrated in developed regions, meaning that it may in practice work as an anti-regional policy (Forth and Jones, 2020). This paper examines the geography of public R&D funding in European subnational regions and its development over time, using data from Eurostat for 200 regions between 2009 and 2018. First, the paper examines which regions attract public R&D funding. More developed regions tend to receive more public R&D funding, mainly because of their higher business R&D funding and human capital. Second, the paper analyses whether public R&D funding is converging across regions. There is unconditional beta-convergence in public R&D expenditure but no evidence of sigma-convergence. For business R&D expenditure, the initial disparities are higher but there is evidence of both beta- and sigma-convergence. The paper concludes that public R&D funding tends to direct resources towards more well-endowed regions and shows no signs of sigma-convergence. Research and policy addressing regional inequality and the dark side of innovation should pay more attention to the spatial distribution also of public R&D funding. • Regions with higher GDP receive more public R&D funding. • Regions with more human capital and business R&D receive more public R&D funding. • Overall beta-convergence is higher for business R&D expenditure than for public R&D. • There is sigma-convergence in business R&D expenditure but not in public R&D. • Public R&D funding contributes to reinforcing innovation-led spatial inequality.