Peripheral implications of national innovation: insights from the Israeli experience

Abstract

ABSTRACT Despite the growing importance of innovation and technological advancement in stimulating economic growth, their impact on peripheral regions is not completely clear. Two contradictory effects are analysed in the literature: new growth opportunities and the tendency toward geographical concentration of innovation. This study contributes to the literature by distinguishing between the impact of the national innovation trend on the economic structure of the periphery (demand side) and its impact on the resident labour force (supply side), occupied in or out of the periphery, and by adopting and adapting the concept of a knowledge-based economy as a major measure. Using ‘best-fitted’ regressions on the last two decades in Israel, we found a discrepancy between demand and supply. The economic structure of the periphery (demand) shows some adaptation to national innovation trends in terms of an increased share of high-skilled occupations; however, the demand does not match the improvement of the local labour force supply. The results highlight the need for further investigation into the imbalance between the impacts on the labour demand/supply balance, ecosystem factors that influence the lower flexibility of the local economic structure, and the existence of a regional market failure.