Innovation ingredients, gross domestic product and productivity: A spatial panel analysis of European regions

Economic literature identifies innovation as a primary driver of productivity and GDP, with effects extending across borders via inter-regional spillovers. However, the role of territorial characteristics in shaping this transmission remains under-explored. Using spatial econometric techniques, we evaluate the intra-regional (internal) and inter-regional (external) impacts of European innovation through two approaches: the composite Regional Innovation Scoreboard (RIS) and a disaggregated framework of innovative milieu variables. Our results reveal an asymmetric spatial pattern: the RIS is associated with negative internal effects on productivity and GDP but generates positive spillovers for neighboring regions. This suggests that local returns may be limited by short-run adjustment costs or absorptive capacity constraints, even as benefits diffuse spatially. These findings emphasize that innovation strategies may not be fully internalized locally, highlighting the necessity for place-sensitive policies that account for spatial dependencies.