Navigating the innovation policy dilemma: How subnational governments balance expenditure competition pressures and long-term innovation goals

In the pursuit of economic growth, the role of innovation has become increasingly important, posing dilemmas for subnational governments as they navigate the balance between expenditure competition and long-term investments in innovation. This study aimed to investigate the intricate relationship between fiscal pressures and the pursuit of innovation goals faced by regional authorities. To achieve this, a systematic literature review was conducted, synthesizing more than 150 studies published within the past 15 years. Keyword searches were conducted across multiple databases, and additional scholarly articles were incorporated through citation tracking. Rigorous qualitative analysis techniques, including inductive coding and thematic analysis, were employed to distill conceptual insights from the literature. The analysis performed in this review reveals extensive discussions regarding the influence of competition on innovation outcomes, encompassing a wide range of perspectives. The potential advantages of localization are emphasized by some viewpoints, while others caution against the risks of inadequate investment. The effective coordination of policies across multiple levels of governance to maximize synergies between national and subnational innovation systems emerges as a complex yet crucial challenge. It is observed that collaborative networks, which facilitate knowledge exchange through industrial clustering and public-private linkages, play a significant role in leveraging regional innovation assets. Strategic approaches that successfully balance competition with long-term capacity development have been demonstrated by leading jurisdictions. These findings highlight the significance of tailored policy frameworks that account for the unique contexts of each region, providing opportunities to harness competitive motivations while sustaining investments in innovation. Ongoing coordination is essential to strike a balance between responsiveness and coherence across diverse territories. This study offers practical guidance and academic insights on strategies to align decentralized imperatives, aiming to optimize prosperity through knowledge creation within evolving multi-level innovation systems. By shedding light on these strategies, the research contributes to both practical and academic understandings of how to effectively navigate and capitalize on the dynamics of such systems.