Innovation, heterogeneous firms and the region: evidence from Spain

Abstract

This paper investigates the role of regional factors in innovation performance, controlling for firms' absorptive capacity and other sources of firm heterogeneity. The findings for a sample of firms in Spain support the hypothesis that regional determinants matter, though their role is subtler than is frequently assumed. Rather than exerting a direct influence on firms' innovation, the regional context moderates the effect of internal determinants, particularly of the firms' absorptive capacity. The results indicate that the type of relevant interactions differs for product and process innovation and that they only operate for small and medium-sized enterprises, being negligible for large firms.