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Regional Innovation Systems and Regional Competitiveness: An Analysis of Competitiveness Indexes

Paper to be presented at DRUID-DIME Academy Winter 2008 PhD Conference on

Geography, Innovation and Industrial Dynamics

January 2008

Sanna Kaisa Seppnen The Institute of Business Information Management

Tampere University of Technology P.O. Box 541

FI-33101 Tampere FINLAND sanna.seppanen@tut.fi

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Abstract

Analysing 13 competitiveness and innovation indexes this paper examines the influence of regional innovation systems on regional competitiveness and how the main elements, operations and features of regional innovation systems have been taken into account in the indexes. The study shows that there are many indicators which can be used for the evaluation of regional innovations systems. However, compared with the literature on regional innovation systems the indexes offer only a partial picture of the actors, structure and dynamics of regional innovation systems and their influence on regional competitiveness.

1. Introduction

Global competition and technological development have lead to a change in the success factors of developed economies. Innovation has become an important determinant of the competitiveness and success of firms, regions and nations. In addition to the internal factor of firms affecting innovation the external environment is at least as important (Porter & Stern 2001). Innovation system literature offers a certain point of view to innovation in society emphasising the interactive nature of innovation (Edquist 2005). Regional innovation system has an influence on innovation at regional level and thus it can also be assumed to have an influence on the competitiveness and success of a region. Also policy and decision makers have recognised the importance of innovation to the competitiveness of cities, regions and nations and the growing interest can be seen in many strategies and indexes measuring and illustrating competitiveness at different levels.

The objective of this paper is to evaluate how the main elements, operations and features of regional innovation systems have been taken into account in various indexes describing competitiveness and innovation. It is assumed that the components of the indexes are based on certain theoretical assumptions of competitiveness and that the indexes, their structure and components reflect the central features of these theoretical assumptions. Thus the components are treated as representatives of these theories. Based on these assumptions the components are analysed and not the theories and empirical research on competitiveness. By analysing the components and contents of the indexes the underlying theoretical assumptions can be made visible. This paper shows how the influence of regional innovation systems on competitiveness appears in the indexes. This is done by analysing and classifying the contents of the indexes and comparing the results with the theory on regional innovation systems found in literature. The theoretical literature on regional innovation systems serves as a lens through which the indexes are examined. Finally it is argued which aspects are described in depth and which appear to be the main deficiencies in the indexes.

This paper consists four. The paper starts with a review of the theory of regional innovation systems which includes the background of the concept, institutional structure, actors, and dynamics and interaction of regional innovation systems. Chapter three describes the research data, i.e. the competitiveness and innovation indexes, and method of analysis. In chapter four the results of the

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analysis are presented and compared with the theoretical points made earlier in chapter two. The paper ends with concluding remarks.

2. Review of the theory of regional innovation systems

Innovation in society and more specifically innovation systems have been studied at various levels and with various scopes. These include e. g. national innovation systems (Lundvall 1992, Nelson 1993), regional innovation systems (Cooke et al. 1997, Howells 1999), sector innovation systems (Malerba 2002), innovative milieus (Camagni 1991), and technological systems (Carlsson 1995). In the core of innovation system literature is the view of innovation as an interactive and evolutionary process. Innovation is not seen as a single and separate event but as a process in which various organisational actors innovate in interaction (Edquist 2005).

A system of innovation is constituted by elements and relationships which interact in the production, diffusion and use of new knowledge (Lundvall 1992, p. 2). This knowledge is exploited for practical, including commercial use (Cooke et al. 1997, p. 478). Thus the knowledge created, diffused and used is not always in the form of commercial products or services but can have practical and social effects. More specifically knowledge may take the form of new ideas and concepts, new skills or competencies, or technological and organisational advances (Schienstock & Hmlinen 2001, p. 78). An innovation system is a social and dynamic system (Lundvall 1992, p. 2). The system is social because a central activity in the system, learning, is a social activity. Innovation in the system involves positive feedback and reproduction which makes it a dynamic system. Thus innovation is not a linear but a recursive process and the system is recursive by nature (Schienstock & Hmlinen 2001, p. 78).

Institutional structure of a regional innovation system

The agenda for the theoretical development of the regional innovation system approach has been influenced by different theories. The major contributions to this approach have come from evolutionary, institutional and regional economics, economics of learning, economics of innovation and network theory (Doloreux 2002, p. 244). In particular an important foundation of the theory of regional innovation systems is in the ideas of Lundvall (1992) on national innovation systems. National innovation systems are identifiable as national economies differ regarding the structure of the production system and regarding the general institutional set-up and as national innovation systems reflect these facts. Specifically this is shown in:

Internal organisation of firms Interfirm relationships Role of the public sector Institutional set-up of the financial sector R&D intensity and R&D organisation training system (Lundvall 1992, s. 13 & 15)

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The elements comprising the institutional structure of a regional innovation system can be identified. According to Howells (1999) regional innovation systems are readily identifiable and meaningful from national innovation systems, depending to what extent a nation can be said to have a homogenous regional structure relating to innovation. The same components as in national innovation systems exist at regional level and these components can be used for the analysis of regional innovation systems. Nevertheless, regional innovation system is treated as a separate unit of analysis because the components of national innovation systems are delivered and responded to differently at regional level.

Like national innovation systems, regional innovation systems and their characteristics, including the institutional set-up, evolve through time to be distinctive to that certain region (Cooke et al. 1997, p. 479). The institutional structure evolves in interaction with actors of the system. The interaction between structure and actors is bidirectional (Howells 1999, p. 78). A region becomes distinctive as it evolves through time to an institutional repository of a certain negotiated, evolving, collective social order which establishes, to some extent organisationally, the institutional routines, norms and values by which actors may come to trust each other collectively (Cooke et al. 1997, p. 480). The institutional structure facilitating innovation includes several elements: industry specialisation and structure, governance structure and its autonomy including public and private administrative set-up and intermediating structures, financial system and its autonomy including finance of activities of firms, R&D and infrastructure, structure of the research and development functions as a part of knowledge generation, training and competence building system, non-organisational institutions such as contracts, laws and norms and operational cultural factors (Howells 1999, Cooke et al. 1997, Autio 1998).

Cooke (2005) emphasises the importance of cultural factors influencing innovation at regional level. He refers to these as the superstructural issues which are the mentalities among regional actors or the culture of the region. Culture appears at two levels: institutional and organisational (for firms and governance) level. He states, that together these help to define the embeddedness of the region, its institutions, and organisations or the extent to which a social community operates in terms of shared norms of co-operation, trustful interaction, and untraded interdependencies. Opposite to these are competitive, individualistic, arms length exchange, and hierarchical norms. A cooperative culture, associative disposition, learning orientation, and quest for consensus are typical to a region displaying systemic interactive innovation at both institutional and organisational levels. Embeddedness enables emergence of a milieu within which the associational networks so crucial to interactive innovation can become institutionalised (Cooke et al. 1997, p. 489).

Actors of a regional innovation system

The actors of the system innovate in interaction through production, diffusion and application of new knowledge (Edquist 2005). Autio (1998, p. 133) distinguishes two separate subsystems that constitute the main building blocks of regional systems of innovation. These are the knowledge-application and exploitation sub-system and the knowledge generation and diffusion sub-system.

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The former consists mainly, but not exclusively, of industrial companies, while the latter comprises various, mostly public sector, institutions. There are four interest groups related to industrial companies that are customers, collaborators, contractors and competitors (Autio 1998) or members belonging to a supply chain (Cooke et al. 1997) including small, large, industrial and service firms. The knowledge generation and diffusion sub-group includes four main types of institutions: public research institutions, educational and more broadly defined skill-development (Cooke et al. 1997) institutions, workforce mediating institutions, and technology mediating institutions or other intermediary organisations. Intermediary organisations improve connectedness within a system, particularly through bridging ties, but they also have a role of creating new possibilities and dynamism within a system (Howells 2006). Also important actors in a regional innovation system include public and private funding organisations and non-firm organisations (Cooke et al. 1997). Although Autio (1998) divides the system into two separate sub-systems he states that the distinction is a simplifying one and the companies and institutions do carry out activities belonging to both of the sub-systems. Thus the actors have multiple roles in the system.

Dynamics and interaction of a regional innovation system

Although the regions do display significantly different structures of innovation system components it is at the level of the internal dynamics of the interaction of firms and organisations and their links back to the wider institutional structure within the regional system of innovation that is so important and make regions valuable for study in their own right (Howells 1999, p. 78). Also Autio (1998) argues that the interaction between agents has not been in the direct focus of the analysis of NISs. According to Howells (1999) regional innovation systems represent crucial arenas for localised learning and tacit know-how sharing. The institutional level mentioned earlier is still crucial and vary significantly between regions, but the regional level includes the informal links between people and the primary decision making space for firms.

The organisations of a regional innovation system are associative, meaning there is systemic, i.e. regular, two-way, interchange on matters of importance to innovation (Cooke et al. 1997, p. 484). The interactions within and between organisations and sub-systems generate the knowledge flows that drive the evolution of regional system of innovation (Autio 1998, p. 135). Linkages between key organisations can be specified in terms of flows of knowledge and information, flows of investment funding, flows of authority and even more informal arrangements such as networks, clubs, fora and partnerships (Cooke et al. 1997, p. 478).

Learning is a central function in innovation systems and the associative organisations form the regional learning system that is a part of the regional innovation system (Cooke et al. 1997). The most important learning processes for innovation are interactive and partially emanate from routine activities. These include learning-by-doing, learning-by-using and learning-by-interacting, DUI-mode, or the experience-based mode of learning (Jensen et al. 2007). Encompassing these processes a regional milieu for continuous learning may emerge, which includes an efficient and embedded culture of knowledge sharing and circulation (Kautonen 2006, p. 270). Also more deliberate

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searching and exploring activities (Lundvall 1992, p. 11) and scanning and invention (Howells 1999, p. 82) take place in innovation systems for expanding the knowledge of actors. This is the case especially in regional innovation systems that are global research and development nodes where new knowledge is created in universities and public or private research and development laboratories (Kautonen 2006, p. 270). This refers to the STI-mode, Science, Technology and Innovation, of learning based on the production and use of codified scientific and technical knowledge. Also patterns of communication and knowledge sharing are important processes as a part of the key dynamic processes fundamental to the micro-foundation of localised innovation (Howells 1999, p. 82).

A regional innovation system is an open system interacting beyond its boundaries (Schienstock & Hmlinen 2001) meaning the process of diffusion is bidirectional in nature (Cooke et al. 1997, p. 484). The external influences to a regional system of innovation come from other regional systems of innovations, from the national innovation system, and from international sources (Autio 1998, p. 135). Also Bathelt et al. (2002) highlight the importance of linkages outside a region for innovation. They consider that through the trans-local pipelines more information and news about markets and technologies are pumped into internal networks and the local buzz, consisting of information such as rumours, gossip and news, learning processes and interpretative schemes, becomes more dynamic. The extra-local pipelines offer access to valuable information and knowledge created outside the region or the multiple selection environments that open different possibilities. Thus the linkages outside the region support its renewal and path-creation and help to avoid lock-in (Schienstock & Hmlinen 2001).

3. Research data and method of analysis

There is a substantial amount of indexes and reports describing the competitiveness and innovation performance of nations and regions. In the competitiveness reports and evaluations included in this paper an index can stand for two things: 1) a single numerical value that combines a number of quantitative indicators defining the numerical value of the index or 2) a set of indicators of which no common value is defined. The reports usually include quantitative indicators and qualitative analysis.

In this paper it is assumed that the indexes and their contents are based on theoretical assumptions of the factors influencing competitiveness and innovation performance of regions and nations. Thus the constructors of the indexes have not chosen the indicators of the indexes in an arbitrary fashion. The indexes, their structure and components reflect the central features of these theoretical assumptions. Thus the components are treated as representatives of these theories. Based on these assumptions the components are analysed and not the theories and empirical research on competitiveness.

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Research data: Competitiveness and innovation indexes

The research data comprises 13 indexes. The indexes were sought in literature. The main data sources were the Internet and various library databases. The data was collected and analysed between May and August in the year 2006. After the data was collected 13 indexes were selected from the total number of 28 indexes. 16 indexes were excluded from the analysis since they were considered irrelevant for reaching the objective of this paper. The aim of the analysis was to gain as comprehensive picture as possible of the factors considered important to competitiveness and innovation by the constructors of the indexes. In the selection of the indexes the following criteria was used: the indexes should aim at illustrating competitiveness or innovation in a comprehensive way, the aggregate of indexes should illustrate the performance at various geographical levels, and the aggregate of indexes should include both indexes presented in scientific articles and reports or guidebooks for policy makers. Table 1. presents a summary of the indexes included in the analysis.

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Table 1. The indexes

Name of the index or the name of the report

Year Constructor Focus of evaluation Number of indicators

Includes an index number

The European Innovation Scoreboard

2005 European Commission

Innovation, to evaluate and compare the innovation performance of the EU Member States

26 Yes, The Summary Innovation Index

Measuring Regional Innovation: A Guidebook for Conducting Regional Innovation Assessment

2005 Council on Competitiveness

Innovation, to assess the regional innovation environment to help strengthen regional prosperity

38 No

Innovation Index 1999 Porter & Stern

Innovation, a quantitative benchmark of national innovation capacity including international evaluations

9 Yes, The Innovation Index

The European Competitiveness Index

2004 The Huggins Associates

Competitiveness, examines and measures the competitiveness of Europes regions and nations

50 Yes, the European Competitiveness Index

Global Competitiveness Index (GCI)

2006 World Economic Forum (WEF)

Competitiveness, enhancing the understanding of the key ingredients of economic growth and prosperity at international level

90 Yes, GCI

Euro-Creativity Index 2004 Florida & Tinagli

Examines creative class and competitiveness at international level

9 Yes, Euro-Creativity Index

Regional competitiveness: A comparative study of eight European regions

1999 Schienstock Compares the competitiveness of eight European regions

9 Interregional

Constructing an Index for Regional Competitiveness

2001 Huovari, Kangasharju & Alanen

An index to measure regional variation in competitiveness in Finland

16 Yes, Regional Competitiveness Index

Knowledge and Innovation Subsidies as Engines for Growth The Competitiveness of Finnish Regions

2006 Piekkola Compares the competitiveness of Finnish NUTS 4-level regions

20 Yes, Competitiveness index

Science, Technology and Industry (STI) Scoreboard

2005 OECD Explores OECD countries' performance in the areas of science, technology, globalisation and industry

76 No

ESPON Briefing 2 2006 European Spatial Planning Observation Network

Analyses a variety of European trends that are important in relation to the Lisbon Strategy

65 No

The Index of Silicon Valley

2006 Joint Venture Silicon Valley Network

Measures the strength of the regions economy and the health of the community

62 No

Technology Barometer 2004

2004 Naumanen Measures the state of technological and scientific expertise and development in a given country

72 Yes, in separate themes

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Three indexes evaluate innovation and the rest competitiveness or other kind of success that, nevertheless, is considered significant to competitiveness. The indexes evaluate competitiveness and innovation at different geographical levels. There are six regional and seven national level indexes. These include both single-case evaluations and comparisons between different regions or nations. Seven indexes are international comparisons between nations. There are two Finnish regional comparisons and one international regional comparison. The American indexes are regional level indexes evaluating one region.

The usefulness of the indexes is justified with rather similar arguments in different index reports. In general the reports included in the research data are designed for decision-makers and managers. The indexes serve as information source and analytical tool for supporting of economic or innovation performance. Strategic decision-making requires a clear understanding of the factors supporting competitiveness and the state of these factors. The indexes offer an estimate of the state of the subject under assessment and reveal the challenges and weaknesses but also the potential for future success. The assessments also offer comparisons between regions or nations or time series of annual performance of a single region or nation.

For the purpose of reaching the objective set for this paper it was essential to concentrate on the indexes measuring competitiveness and innovation. As an objective for the selection of the indexes was to find indexes which comprehensively illustrate competitiveness or innovation, the indexes describing a single factor of competitiveness were not included in the analysis. For instance, indexes evaluating corruption, Corruption Perceptions Index (Transparency International 2006), or sustainable development were not included in the analysis although they are relevant to competitiveness. Also one internationally acknowledged index report was excluded from the analysis, The World Competitiveness Yearbook 2006 by IMD (International Institute for Management Development). Inclusion of that report was impossible due to the schedule and the resources of this research. Although the indicators of the IMD report were excluded from the analysis, the titles of the indicator groups were taken into account and thereby the index has influenced the analysis.

Method of analysis

The indexes were discovered to comprise three main features relevant for the analysis: 1) the title of an indicator i.e. what an indicator is assumed to measure or illustrate, 2) the content of an indicator i.e. what an indicator actually measures and illustrates 3) the different elements of a regional innovation system i.e. how the indicator is related to the elements and features of regional innovation systems. These three aspects were taken into account in the analysis and classification.

The analysis and classification was conducted in three phases: 1) formation of the main groups, analyses and classification of the titles into main groups, 2) classification of indicators into main groups, analyses and classification of the indicators into the main groups and 3) formation of the sub-groups, classification of the indicators into sub-groups according to their content. The analysis

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started with classification of the titles. A general definition of innovation systems and their elements by Lundvall (1992, p. 13) was used as a starting-point for the classification. The titles were grouped according to the definition and new groups were formed for the titles which did not fit by their content into previous groups. After classification of the titles the indicators were analysed and placed into the main groups according to their content. After placing all the indicators in the main groups the sub-groups were formed. The sub-groups and their title names were based solely on the contents of the indicators and at this point no theoretical literature was used as a guideline or basis of the analysis. All indicators are a part of only one sub-group.

4. Results of analysis

As a result of the analysis 11 main groups and their sub-groups which represent the contents of the indexes were formed. The groups are

Human capital Innovation Private sector Public sector Research and development Finance Interaction Attitudes and values Infrastructure Economic performance and Environment and health.

The contents of the indexes are summarized in a table in the Appendix. The analysis shows how the main elements, operations and features of regional innovation systems have been taken into account in various indexes describing competitiveness and innovation. This is done by analysing and classifying the contents of the indexes and comparing the results with the theory on regional innovation systems presented earlier in chapter 2.

Human capital

The first group is Human capital. This group includes indicators which on the grounds of the titles aim at describing human capital, general competence and talent in society, inputs of innovation activity and economic success, human resources, talent, knowledge and capability. The aspects under evaluation are mostly inputs and resources and not outputs. Indicators do not evaluate process but potential which human capital enables. In innovation systems competence and human capital as a whole are important resources. Information, competence, ideas, capabilities, skills and technologies flow in innovation systems and actors use them for innovation. Thus it is important to evaluate human capital and the institutional structure and actors which comprise the educational

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system and competence developers when describing innovation systems. In the indexes related to human capital two areas are evaluated: education and employees.

Education is evaluated with the number of Students and Graduates and the Quality of education. In addition there are indicators which do not fit into these subgroups and they comprise subgroup Others. Students are evaluated with the number of students but also with the number of more specifically defined groups of students, such as technical, primary, secondary, tertiary and vocational students and extent of algebra enrolment. According to the titles the indicators aim at describing human capital, education preparing for economic success and quantity of education. The other subgroup measuring education is Graduates which describes the level of education. This subgroup includes indicators which measure the amount of different degrees, staff training and life-long learning. There are indicators measuring degrees in general, upper secondary degrees, bachelor degrees, tertiary degrees, science and technology graduates and PhDs, flows of university graduates and different university graduates. Thus the type of the degree varies and in some indexes it is defined quite strictly which degrees are important as to others it is enough to evaluate the amount of degree son general level. According to the titles the amount of degrees represents knowledge innovation drivers, inputs and competence.

The indicators in the subgroup Graduates concentrate on evaluating the amount of official degrees while learning and knowledge is much more than degrees. It could be argued that degrees represent the readiness of individuals in a region to learn and act in specific duties. For an innovation system it is important that all its actors are competent and learning is continuous. Thus it would be relevant to evaluate the degree of competence more extensively and in more detail by actor groups. It would be important to demonstrate what kind of competence, knowledge and capability the actors need to operate in an innovation system. The general amount of degrees does not necessarily reveal the relation between the competence level and the demand for competence.

The Quality of education is measured especially with elementary school and early education indicators which evaluate ability to read, mathematical skills and competence in natural science. In addition the general quality of education, educational system and management schools are evaluated. These indicators evaluate if the education of a certain competence area meets the needs posed on the system. The educational system and competence developers are a part of a regional innovation system. However, there are few indicators describing the quality of education and the overall system and the indicators mostly evaluate the basic skills that form the basis for expertise and learning. Other indicators measuring education were: Spending on education, mobility of doctoral students and local availability of research and training services of which the last one describes the competence developers in the area.

The second subgroup of Human capital is Employees which is divided into five subgroups: Research and development, Employment in manufacturing, Employment in services, Employment in science and technology and Others. Concerning research and development the general number of employees, private sector, public sector and high education sector employees are measured.

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According to the titles these indicators aim at describing human resources in science and technology, creativity and the state of knowledge economy. Employment in manufacturing is measured with the number of employees in medium-high and high-tech manufacturing, computer manufacturing and machinery and equipment manufacturing. These aim at describing application of innovation output and the state of knowledge economy. Services are measured with employment in high-tech, ICT services and the whole service sector. These evaluate the same themes as in manufacturing but also the restructuring potential and science and technology capabilities. The subgroup Science and technology includes indicators such as researchers in scientific disciplines, employment in science and technology intensive industry and the general employment in science and technology. These aim at evaluating the state and the enablers of a knowledge economy and society. The subgroup Others includes indicators which evaluate the division of labour in different competence fields on different grounds such as profession or the creativity of a profession. In addition there are many indicators measuring and evaluating population, its size, diversity according to age and ethnical background, density and mobility.

Indicators which measure employment clearly aim at describing the level of competence but also the phase/stage of development of a society which for example is the goal when measuring services. Employment indicators are important for the evaluation of innovation systems as it is important to know what kind of actors exist in the innovation system. The employment in different parts of manufacturing aim to indicate in an interesting way how knowledge and information produced through innovation is applied in an innovation system. It could also indicate the areas of expertise which exist in an innovation system and thus the application of information produced inside or outside the system. There is a clear idea that the effect of successful innovations can be seen in the number of produced goods and services and thus in the number of employees in a particular field. A big share of employees in a particular field tells a story/indicates that something is done right but it does not tell the rate of innovation in the firms or the amount of innovations actually produced. The indicators do not reveal which part of the number of employees is due to innovation and new products and services as firms can succeed with other means than just innovation. Employment is measured on a general level or the industries producing physical goods. Thus product innovations are valued higher than service or process innovations. It could be contested if the industry the firms operate in directly indicates the competence areas the firms innovate in. For example a company producing physical goods could gain its competitive edge from its competence in logistics.

Traditionally the number of employees is used for describing the structure of economy. The titles indicate that by describing the structure of economy it is possible to get information of the level of competence, competence needs and the producers of competence. On the basis of the indicators new knowledge is created by employees in research and development activities and in science and technology professions. However, various actors in a regional innovation system take part in the production of information which is used for innovation (Autio 1998). Thus the indicators offer a rather narrow and science-based picture of the producers of knowledge. In addition, a big problem with the indicators is that they are all quantitative. Quantity is measured in a very detailed manner although this does not reveal the quality or level of competence. On the basis of the indicators it is

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possible to tell that in a specific region there is a high agglomeration of employees in a particular field of expertise. However, it is not clear how well the competence offered meets the needs of the employers. To uncover this there is a need for indicators describing interaction.

Innovation

The second group is formed of indicators describing innovation. The indicators related to innovation describe innovation performance, innovativeness and creativity. On the other hand some indexes use indicators of innovation for describing innovation as an activity or operation. In the indexes innovation activity is knowledge production, understanding and management, commercialisation and protection, application or production of ideas. The indicators related to innovation can also describe property or possession such as intellectual property which describes the output of innovation activity. Thus innovation is evaluated from three perspectives which are all important when evaluating innovation systems. The group was divided into four subgroups. These are Patents, Other forms of innovation, International activity related to innovation and Innovation in enterprises.

The subgroup Patents is divided into four subgroups which are General patents, European patents, USA patents and Patent type. The indicators in the subgroup General patents measure the amount of patents, geographical concentration or intensity of patents. The subgroup European patents includes the amount of patents and patent applications to European Patent Office (EPO) and US patents include patents or patent applications to the United States Patent Office (USPTO). The indicators in the subgroup Patent type describe the industry or scientific field to which patents belong to. According to the titles patents reveal the output of innovation, innovativeness and intellectual property and its protection.

The subgroup Other forms of innovation includes indicators which aim at illustrating other outputs of innovation activity than patents. These other forms are products, services, processes, technologies, organisational forms and management practises, trademarks, designs and scientific articles that are new to firms or markets. In addition innovation is evaluated with the amount of new firms, gazelles, fastest growing firms and value added. The titles indicate that indicators describe production of new knowledge, diffusion and application, innovation society, outputs of innovation activity and their protection.

Compared to the indicators in the subgroup Other forms of innovation patents are used more often for the evaluation of the results of innovation activity. Only two indexes analysed in this paper did not include indicators measuring patents. There were also four indexes which did not use any other indicators besides patents for evaluating the results of innovation activity.

For the evaluation of a regional innovation system it is crucial to assess the results and output of the system. On the basis of the titles indicators in the group Innovation measure factors relevant to regional innovation systems such as knowledge production, understanding and management,

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commercialisation and protection, application or production of ideas. These illustrate the main functions of an innovation system: production, diffusion and application of new knowledge (Lundvall 1992). However, by using just the amount of patents to indicate innovativeness only a very narrow picture can be drawn. Patents are good in describing protected intellectual property. Yet, there are many forms of innovation outputs which cannot be protected or are not sensible to be protected with patents. There is also a risk of excessive attention being paid on technological innovations at the expense of other forms of innovation.

International activity related to innovation includes indicators such as foreign ownership of domestic inventions or domestic ownership of foreign inventions. In addition, there are indicators measuring foreign patents and international cooperation in innovation activity. These thrive at describing protection, commercialisation and generally the results of innovation. For the renewal of a regional innovation system it is important that actors have linkages outside the region. If the actor do not attain new information from outside the region there is a danger of a lock-in (Bathelt et al. 2002). Thus the international aspects of innovation activity are important when evaluating innovation systems.

The last subgroup is Innovation in enterprises. This subgroup includes indicators which measure innovative enterprises and their cooperation, patents by a sector or a cluster, ways to obtain technology and small and medium sized firms that receive funding for innovation. The titles suggest that the indicators in this subgroup describe innovativeness, entrepreneurship and production, diffusion, understanding and management of information. As firms have a central position in innovation systems the evaluation of their innovation activity, how they finance innovation, and how they obtain technology they are using are essential when evaluating the whole innovation system.

Private sector

The group Private sector includes the largest number of indicators of all the groups. The indicators are also rather versatile. Private sector actors are important producers of economic well-being and different firms, industrial companies, customers, collaborators, contractors and competitors (Autio 1998) or members belonging to a supply chain (Cooke et al. 1997) including small, large, industrial and service firms, are central actors in regional innovation systems. This group is divided into two subgroups: Enterprises and Productivity and Economic performance. Enterprises subgroup is further divided into five subgroups which are Specialisation of enterprises, Operations and strategy, Employment, and Technology acquisition.

Specialisation of enterprises subgroup includes indicators which describe the type of business and how different sectors are in connection with one another. The indicators describe the size and type of enterprises, clusters and sectors. There is also an indicator measuring the number of decision making functions. According to the titles the indicators aim at describing business sophistication and the knowledge society and economy. The indicators in the subgroup Specialisation of

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enterprises are important when describing innovation systems. They extensively describe the production structure as a part of the institutional structure of a regional innovation system.

The indicators in the subgroup Operations and strategy are mostly from the Global Competitiveness Index 2006. These indicators illustrate the internal operation and strategies and sources of competitive edge of firms. According to the titles the indicators in this subgroup represent business sophistication and thus the overall sophistication of the whole economy. The strategies and operations of firms and of other actors in an innovation system affect innovation. These indicators also offer an interesting possibility to examine the interaction and networks of actors, such as hierarchies, the decision-makers power or authority the efficiency of decision making and the standards of how to communicate and act in the system.

The Employment subgroup contains indicators which measure the number of employees in different sectors in production and services. According to the titles this subgroup illustrates both the results and inputs of production processes. On one hand employees are inputs which bring their competence and creativity to the production process and also to the innovation process. On the other hand the number of employees in a particular sector illustrates the strength of that particular sector and thus the results of the economy and its features. The employment rate in high-tech production is assumed to represent the strength of a knowledge society or a knowledge economy. Or the extent to which economical activity is based on creativity and application of inventions. These indicators contain problems similar to those of the quantitative indicators describing employment in the group Human Capital. They do not show if the inputs are of high quality. It is assumed in the indexes that in the end the economic success of a nation or region indicates the quality of inputs, in this case employees. According to the titles the employment figures also illustrate the output of the system. It is evident that in the indexes the goal of the innovation activity is high employment and strong economic activity especially in high-tech industries.

The subgroup Technology acquisition illustrates the ways with which new technology is obtained. According to the titles the indicators in this subgroup are connected to innovation in enterprises. Technology acts as an enabler of operations and as a result of production. Thus it may be an input or an output depending on the situation. Regarding the evaluation of innovation system it is important to evaluate production of new technology because technological information is a part of the information flows in regional innovation systems. In the indexes production of new technology indicates the development stage of a society or the success of an economy based on information or knowledge. The last subgroup Economic performance and productivity includes basic economic indicators such as sector productivity, wages, growth and bankruptcy. Economic performance illustrates the outputs of an innovation system.

Public sector

The group Public sector includes four subgroups which are Investments and productivity, Employment, Institutions and Operations and regulations. The indicators included in the subgroup

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Investments and productivity measure public funding for research and development, enterprises receiving public funding, public sector productivity, technology procurement and wastefulness of public spending. The Employment indicators measure employment in research and development, government, administration, education, health and social work. Both subgroups are linked to innovation activities and creativity, especially to research and development resources. The number of employees also reveals the relative significance of certain operations in the public sector. The use of public resources is connected to the efficiency of the public sector.

Different public sector actors are a part of a regional innovation system. The indicators illustrate the public sector actors to a large degree as enablers of innovation as they fund research and development. According to the indicators public sector can also take part in the creation of new knowledge which is evaluated with employment indicators in research and development.

The indicators related to Institutions include: the number of decision making functions and agglomeration of administration and also trust in public institutions. These indicators express the administrative significance of a region. According to the titles trust in public institutions impacts understanding and management of knowledge. Trust is a part of the cultural elements in innovation systems and its significance for successful interaction is important (Cooke et al. 1997). Thus evaluation of trust is relevant for the assessment of innovation systems. The biggest subgroup of Public sector is Operations and regulations. This subgroup includes indicators which assess the efficiency of regulations and laws especially in protecting intellectual property. The subgroup also includes indicators evaluating cost of doing business, taxes, crime and corruption and trust in politicians. According to the titles these indicators describe the efficiency of markets and public institutions and the ethics and principles of public government and institutions.

In an innovation system public government has an important task of developing regulations and making laws which promote innovation. The public organisations influence on their part the cultural factors in a regional innovation system. Ethics and corruption are a part of the cultural factors that affect innovation. Thus the indicators in the subgroup Operations and regulations are important when evaluating an innovation system. The legislative environment in a nation is usually quite coherent and the decision making power is centralised. Nevertheless, this feature may vary between regions and nations. When evaluating the influence of legislative actions on innovation it is important to know at which level the evaluation is done and at which level laws and regulations actually are made. Nevertheless, there are much fewer indicators for the evaluation of public sector compared to private sector indicators in the indexes. While constructing the indexes the multiple and diverse roles of public sector in innovation have not been properly taken into account. Public sector is not only an element influencing laws and regulations but an active actor which continuously and by various means is a part of innovation.

Research and development

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Research and development is an abundantly evaluated aspect in the indexes and the indicators concerning research and development were to a large degree similar to one another. There were indicators which were at the same time in four to six indexes. However, there were also indicators which could only be found in a single index. This group contains three subgroups: Resources, Employment and Type of research and development.

The Resources subgroup includes subgroups: General resources, Public sector resources and financial expenditures in general, ratio of public and private expenditures and trends in expenditures on research and development. Public sector resources include indicators which measure public and higher education expenditure on research and development. The indicators included in the subgroup Private sector resources measure expenditures at a general level, expenditures on high-tech research and development and changes in research and development budgets and personnel. The titles indicate that research and development is strongly connected to innovation. Expenditures on research and development represent in many indexes the resources allocated to the creation of new knowledge and ideas. Resources can also represent relations between actors if resources are allocated from one actor to another.

Second subgroup is Employment and it includes three subgroups: General, Public sector and Private sector employment. These measure employment in research and development and also the number of researchers. In the Public sector subgroup there are also indicators measuring white collar workers in research and development. According to the titles the indicators of this subgroup illustrate as, in the group Human capital, human capital, talent and creativity.

The third subgroup, Type of research and development, includes indicators which evaluate research and development activities according to firm size and sector, amount of research institutions, quality of research institutions, taxation and internationality of research and development. According to the titles these indicators are also related to innovation and to knowledge economy and society.

The Research and development indicators concentrate on quantity. Financial inputs and diverse employment figures aim at illustrating the resources allocated to innovation. They are resources that are expected to lead to innovation. The employment figures are also expected to offer information on the competence level and talent of a region or nation although the indicators are quantitative. There is only one qualitative indicator which describes the quality of research institutions. Financial resources are essential enablers of innovation. Financial resources indicate if research and development is valued in a society but it gives little information on research and development activities in reality and their quality. Research and development by a sector and by firm size illustrates what kind of firms in innovation systems take part in research and development activities. The internationality of research institutes describes their international linkages which are important when creating new knowledge (Autio 1997). However, knowledge is created in other parts of firms and the whole society in addition to research and development units and organisations through learning by using, doing and interacting (Jensen et al. 2007, Kautonen 2006). Thus the financial

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and human resources allocated directly or indirectly to knowledge creation should be evaluated more extensively. Concentrating solely on research and development leads easily to a situation where the science and technology based view is over-emphasized when evaluating creation of new knowledge and innovation.

Finance

The group Finance is divided into two subgroups: Venture capital and Other investments. The indicators in the subgroup Venture capital measure venture capital investments, their availability, venture capital at an early-stage, companies offering venture capital, business angels and venture capital in different industries. According to the titles venture capital is an input or a resource which enables or makes creation and diffusion of knowledge and innovation possible. It also makes entrepreneurship and renewal of firms possible as it enables the use of new knowledge for starting and developing business.

The second subgroup is Other investments. It includes indicators which measure the efficiency of financial markets, investments in high technology and foreign direct investment flows. In addition, the indicators evaluate the soundness of banks and ease of access to loans. According to the titles these indicators illustrate the overall efficiency of the financial market and the possibilities for firm renewal. Foreign direct investments also increase the flow of information in a region and investments are also being used as an indicator for interaction between actors.

In a regional innovation system financiers are important enablers of the creation of new knowledge and innovation. It is also evident in the indexes that venture capital and the financial system are important elements to be measured as a part of evaluation of innovation systems. It is important to evaluate financial system as a whole, its efficiency and also the ability of venture capital to support innovation.

Interaction

As mentioned in the description of the previous group, investment flows are used as a measure for interaction between different actors of an innovation system. Also in the group Interaction a part of the indicators illustrate financial cooperation. The group includes two subgroups: National and regional cooperation and International cooperation.

The first group is divided into three subgroups which are University-Business, Public government-Business and Business to business cooperation. University-business relations are measured with the amount of investments and research collaboration. Government-business relations are described with indicators which measure public funding for innovation, technology grants and research and development linkages. The indicators describing relations between businesses are vary more than indicators in the subgroups University-Business and Government-Business. The subgroup includes indicators such as innovative SMEs cooperating with others, value and management of network

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ties, cooperation in value chain, the interdependence of services and manufacturing and cooperation in innovative companies. According to the titles cooperation is related to innovation through the creation, sharing and application of new knowledge. They illustrate business sophistication and business networks. Relations are seen as resources which are needed for creation, diffusion and application of knowledge in innovation.

The group International cooperation includes three subgroups: Trade, Investments and Ownership and Others. The indicators in the subgroup Trade measure foreign trade, foreign trade of high-tech products, openness to foreign trade and barriers and competition in foreign trade. The subgroup Investments and ownership includes indicators such as investments to and from abroad, foreign ownership and restriction to foreign ownership, foreign investments to research and development and activity of foreign companies. The subgroup Others includes individual indicators such as trends in international trade and investment flows, contribution of multinationals to productivity growth and international cooperation in patenting activity.

The titles show that international relations have multiple meanings related to competitiveness and innovation. International trade indicates the size of the economy and the intensity of competition. Regulations and barriers affect the efficiency of the economy. International relations also indicate the development stage of an economy and society and thus the infrastructure and its quality which supports innovation. According to the titles international relations are essential to innovation because they enable networking and the flow and application of information. Through international relations a country or a region acquires new information and technology and may be a part of the progress in technological development. The international relations also increase the readiness of a region to create new technology. In addition, international relations indicate the accessibility of a region.

The actors of a regional innovation system use cooperative relations and networks as resources to perform their functions in the system. Innovation is an interactive process in innovation systems as noted in the findings on regional innovation system literature. Thus interaction and cooperative relations are central when evaluating a regional innovation system. In the indexes relations between actors are considered important. Relations also appear in the indexes as resources or inputs which enable networking and the flow of information in and into an innovation system. Many indicators which evaluate cooperative relations measure financial investments. However, there is also a lot of interaction between the actors of an innovation system which is not supported with any official funding which is often informal. Thus evaluating interaction only with the amount of financial resources exchanged does not portray a complete picture of interaction in a regional innovation system. Research collaboration illustrates the interaction in the science based view of knowledge creation. However, knowledge is created, diffused and utilised in interaction which is not science based and to illustrate that interaction new indicators are needed.

It is also worth noting that there are various actors interacting in an innovation system, although there are only three actors, universities, public government and private sector, present in the indexes

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analysed for this paper. Thus the functions and interaction of the other actors should also be evaluated in order to assess an innovation system more comprehensively. Although new knowledge is created, diffused and utilised in informal networks, forums and arenas (Cooke et al. 1997) there are no indicators in the indexes evaluating these forms of interaction. This is a clear deficiency in the indexes. They do not take into account the different ways of creating, using and diffusing knowledge in a comprehensive way. The quality of interaction is evaluated only in business to business relations, and not in business to university tai business to government relations, although it is rather obvious that mere amount of interaction and amount of cooperation does not reveal the benefits of these relations. On the contrary, when evaluating relations and interaction their significance and quality should also be taken into account. The interactive linkages that the actors in a regional innovation system have outside the system have their own significance for innovation. The linkages outside the system bring new knowledge to the system and thus support the renewal of the system. Also the titles of the indicators support this view. It is essential for the evaluation of the system to assess the linkages outside the system. The interaction inside and outside the system should be evaluated in parallel as they are considered to reinforce and support each other (Camagni et al. 1995).

Attitudes and values

The group Attitudes and values includes two subgroups: Attitudes and Values. According to the titles Values illustrate values in the society and firms. This means the things considered valuable in a society and tolerance towards different things. For example these indicators evaluate equality, the value system and its secularity, possibilities for self-expression and violence. Valuation of art and different worker groups also indicate the values of a society. According to the titles Attitudes illustrate the prevailing attitudes towards minorities, different world-views, backgrounds and entrepreneurship. The group Attitudes and values contains the smallest amount of indicators of all the groups although the values of a society ultimately guide the decision made and behaviour of people. In the regional innovation system literature culture is considered to impacts innovation. Attitudes and values are a part of the cultural factors of an innovation system and thus it is important to evaluate them. However, there is only a limited amount of indicators available and they usually measure the general values or the value system of a society. In the context of regional innovation systems it is essential to assess the actors trust and eagerness to cooperate and learn (Cooke et al. 1997) Therefore there is a clear need for indicators (qualitative) targeted at measuring the features of innovation systems.

Infrastructure

The group Infrastructure includes three subgroups: Information and communication technology, Accessibility and Physical infrastructure. The subgroup Information and communication technology includes indicators which measure communication networks, broadband subscribers, Internet usage, telephone lines and communication costs for inhabitants. Information and communication

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technology is viewed as an enabler of an information society and in one index this technology belongs to innovation drivers. It also illustrates the readiness to utilise technology in a society.

The indicators included in the subgroup Accessibility describe transportation infrastructure, motorways, air accessibility, seaport connectivity and housing near transit. According to the titles these illustrate accessibility, connections, land use and significance of the region. Transportation infrastructure is also an enabler of a knowledge society. The subgroup Physical infrastructure includes indicators: housing affordability, availability of commercial space, the overall quality of infrastructure and number of vehicles.

Infrastructure is a basis on which economic activity and the life of inhabitants is built. Thus it is one of the basic factors affecting competitiveness in indexes that measure competitiveness. Information and communication technology, physical infrastructure and accessibility are not directly linked to innovation but they influence innovation in the background as enablers of communication. Accessibility is a prerequisite for building linkages outside the innovation system as effective interaction often requires face to face interaction. Also the autonomy to finance communication infrastructure is considered important to innovation at regional level (Cooke et al. 1997).

Economic performance

The indicators in the group Economic performance illustrate the state of a regional or a national economy. The indicators in this group are divided into four subgroups: Gross domestic product (GDP), Employment and unemployment, Productivity and Income and poverty. The indicators in the subgroup Gross domestic product illustrate the amount of and the changes in GDP. These indicators are basic competitiveness indicators that illustrate the state and development of an economy.

The subgroup Employment and unemployment includes two kinds of indicators according to its name. Employment is measured with jobs and job growth, employment rate, older workers, cluster and sector specific employment. According to the titles these illustrate the output or the results of economic and innovation activity. They describe economy, prosperity, the restructuring potential and value base of a society. Unemployment is measured with unemployment rate, long term unemployment, unemployment of young people and development of unemployment. According to the titles these indicators illustrate the same as the previous indicators measuring employment. In addition, they illustrate the state of the labour market which is considered as an important factor to competitiveness of a region or nation.

The Productivity indicators measure productivity rate and growth. They also assess growth of income and labour productivity. Productivity is an important performance indicator in the indexes. In one index it is assumed to illustrate the impact of knowledge on productive activities. The subgroup Income and poverty includes subsequent indicators: average wage and changes in it, per capita and mean household income, comparative price level, poverty rate and costs of living. In this subgroup ethnicity is taken into account in some indexes when presenting the results. These

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indicators illustrate economic performance and its effects in a concrete way on individual level. They illustrate the value base, prosperity and income and quality of life. These are the outputs or results of economic activity and innovation and. They also illustrate the performance of an economy.

From the view point of regional innovation systems measuring performance is important. Economic performance is a part of the overall performance an the indicators mentioned above fit well when describing the economic performance of a regional innovation system. Nevertheless, it is important to notice that economic performance is not the only goal when developing and measuring competitiveness or innovation systems. Economic capital does not substitute for human resources or the dynamics and culture of regional innovation systems that are essential for innovation.

Environment and Health

The last group of indicators presented in this paper is called Environment and health. The group is divided into two subgroups accordingly. The indicators in the subgroup Environment assess the resources allocated to the protection of environment, energy consumption and share of renewable energy sources, quality of air and water, ecological diversity, emissions of greenhouse gasses and protected areas. These indicators illustrate sustainable development and environmental responsibility. The indicators related to Health illustrate immunisation of children, overweight of youth, infant mortality, life expectancy, the overall health of the population, various diseases and their impact on business. These illustrate the state of the society and its value base.

Environment and health of people are fundamental factors affecting innovation in a society. The indicators measuring these factors illustrate the performance of a regional innovation system and economic activity and also the values of the society. Actors in innovation systems are organisations in which people work and innovate. Thus the health of people and their capacity to work also has an impact on innovation. The individual level is not usually in the focus in the innovation system literature. Nor is the natural environment mentioned as an important factor. Thus the indicators in this group are optional when assessing innovation system although it is important to take into account the context, i.e. the nation or the region where the innovation system is situated or the overall operational environment.

5. Conclusions

There are many useful indicators in the indexes analysed for this paper for the evaluation of regional innovation system. Nine of the groups of indicators are in central position when evaluating regional innovation system. These are Human capital, Innovation, Private sector, Public sector, Research and development, Finance, Interaction, Attitudes and values and Economic performance. Of course not all the indicators included in the nine groups are equally relevant when illustrating the influence of regional innovation systems on regional competitiveness. The remaining two: Infrastructure and Environment and health are in indirect interaction with regional innovation

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systems. The incorporation of some of the indicators included in these two groups depends on the definition of regional innovation system, the context i.e. the region, and what is considered as relevant output of the system. For example if the influence innovation systems have on climate change is considered an important subject, indicators describing this influence should be included in the index as part of the group Environment and health designed for illustrating a regional innovation system.

In any case, it is possible to evaluate the influence regional innovation systems have on regional competitiveness with the indicators included in the indexes. The groups include all the focal actors of a regional innovation system except intermediary organisations. Some actors and parts of the institutional structure are emphasised more than others. For example the indicators evaluating private sector are diverse in contrast to the indicators related to public sector. Many of the indexes were illustrating national level features and thus it is understandable that there are no indicators describing intermediary organisations although they have diverse roles in innovation.

The influence of regional innovation systems on regional competitiveness presented in the indexes can be described as follows: the actors in the system utilise scientific and research and development related knowledge for the production of patents and product innovations which are used by firms for the production of economic capital. Public government acts as a regulator of innovation activity and as a financier with private sector financiers.

Although the indexes describe quite extensively the main actors and structure of a regional innovation system many important aspects of regional innovation systems get no or little attention in the indexes. For example the cultural factors such as the eagerness of the actors to learn and interact (Cooke et al. 1997) are excluded from the indexes. The processes of continuous learning such as learning by doing, using and interacting (Jensen et al. 2007, Kautonen 2006), as a source of innovation and as a basis for the creation of scientific knowledge are not taken into account in the indexes. Also the different types of innovation outputs: process, service and also social innovations do not get much attention. The different roles of the actors of a regional innovation system are not present in the indexes. The indexes view on the roles of the actors is quite directly consistent with the simplifying model of regional innovation system consisting of two sub-systems (Autio 1998). The producers and appliers of knowledge are separate. Compared with the literature on regional innovation systems the indexes offer only a partial picture of the actors, structure and dynamics of regional innovation systems and their influence on regional competitiveness.

The indexes accentuate and hide. They are not innocent but they reveal what is valued. The indexes are an information source for decision makers in public and private sector of the factors that are considered important. If the missing aspects were taken into account, the indexes would provide a more comprehensive picture of the state of regional innovation systems and the factors influencing regional competitiveness. Thus it would positively contribute to the quality of information available for decision makers.

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Appendix: Contents of the indexes Group: EIS ECI (H) RIA STIS RCI TB GCI ECI (F&T) ES II ISV CI RC1 Human CapitalEducation x x x x x x x x x x x x xStudents x x x x xGraduates x x x x x x x x x x x xQuality of education x x x xOthers x x x xEmployees x x x x x x x x x xResearch and development x x x xManufacturing x xServices x x x xScience and technologies x x x xOthers x x x x x x x

2 InnovationPatents x x x x x x x x x x xGeneral x x x x x x xEuropean x x xUSA x x x xPatent type x x xOther forms of innovation x x x x x x x xInternational activity related to innovation x xInnovation in enterprises x x x x x x x

3 Private SectorEnterprises x x x x x x x x x xSpecialisation of enterprises x x x x x x xOperations and strategy x x xEmployment x x x x x xTechnolofy acquisition x x x x x xProductivity and economic performance x x x x

4 Public SectorInvestments and productivity x x x x x xEmployment x xInstitutions x xOperations and regulations x x x x x x

5 R&DResources x x x x x x x x x x x xGeneral x x x x xPublic sector x x x x x x xPrivate sector x x x x x x x xEmployment x x x x x x xGeneral x x x x xPublic sector xPrivate sector x x xType of R&D x x x x

6 FinanceVenture capital x x x x x xOther investments x x x

7 Interaction

National and regional cooperation x x x x x x xUniversity-Business x xPublic government-Business x x x x xBusiness to Business x x x x x x xInternational cooperation x x x x x x xTrade x x x x x x xInvestments and ownership x x xOthers x

8 Attitudes and ValuesAttitudes x x x xValues x x x

9 InfrastructureICT x x x xAccessibility x x x x x x xPhysical infrastructure x x x

10 Economic PerformanceGDP x x x x x

Employment and unemployment x x x x xEmployment x x x xUnemployment x x x xProductivity x x x xIncome and poverty x x x x x x

11 Environment and HealthEnvironment x x xHealth x x x

Abbreviations: EIS: European Innovation Scoreboard 2005 ECI (H): The European Competitiveness Index 2004 RIA: Measuring Regional Innovation: A Guidebook for Conducting Regional Innovation Assessment 2005 STIS: Science, Technology and Industry (STI) Scoreboard 2005 RCI: Constructing an Index for Regional Competitiveness 2001 TB: Technology Barometer 2004 GCI: Global Competitiveness Index 2006 ECI (F&T): Euro-Creativity Index 2004 ES: Espon Briefing 2 2006 II: Innovation Index 1999 ISV: Index of Silicon Valley 2006 CI: Knowledge and Innovation Subsidies as Engines for growth The Competitiveness of Finnish Regions 2006 RC: Regional Competitiveness: A comparative study of eight European regions 1999