Regional R&D spending, absorptive capacity and the regional innovation paradox

Innovation and research and development (R&D) investments are central to regional economic growth. Yet, in the UK, these activities are heavily concentrated in the Greater South East, which receives the majority of public and private R&D spending. This imbalance has contributed to the UK’s status as one of the most regionally unequal developed economies. Redistribution of public R&D has been proposed as a key solution, but it also raises questions about whether shifting investment can reduce disparities without undermining national performance. Existing empirical studies offer limited insight into how spatial redistribution affects regional inequalities, particularly when accounting for spillovers and absorptive capacity. This paper fills the gap by using the multi-regional input–output (MRIO) model SEIM-UK (socio-economic impact model for the UK). The findings reveal that the Greater South East (GSE) experiences disproportionately high benefits due to strong demand multipliers and spillover effects, rather than through productivity gains. Furthermore, absorptive capacity plays a significant role in moderating the relationship between R&D spending and regional outcomes, disproportionately limiting growth in lagging regions. The analysis suggests that an equitable redistribution of R&D investments could promote balanced regional growth without hindering the performance of high-achieving areas like London and the South East. Therefore, enhancing regional innovation systems and addressing constraints in absorptive capacity are essential policy measures to achieve this goal.