Funding innovation, spreading growth? Spatial analysis of the public RDI funding–regional productivity transmission chain

Public research, development and innovation (RDI) funding is expected to foster regional knowledge creation and, ultimately, labour productivity both directly and through spatial spillovers. However, there is a paucity of empirical evidence that analyses the full (spatial) transmission chain from public RDI funding through innovation inputs and outputs to regional productivity. We use a simultaneous equation model for small-scale LAU-1 regions in Finland during 2000–2019 to estimate the strength of this chain. Findings show that public RDI funding transmits to regional labour productivity effects through a well-defined intraregional transmission chain, i.e. through sequential increases in private research and development (R&D) and patenting. We also find evidence for positive interregional spillovers from public RDI funding running through an increase in private R&D in neighbouring regions. By analysing the transmission chain from public RDI funding to regional productivity, our study helps to better understand the role of RDI funding in regional knowledge production and how positive outcomes from this process are amplified through interregional effects in the presence of spatial spillovers.