Spatial Heterogeneity in the Effect of Regional Trust on Innovation

AbstractGeneralized trust positively affects innovation at the regional level by reducing transaction costs and supporting collaboration. We develop theoretical reasons for why the trust–innovation relationship is heterogeneous across geographic space and identify two main mechanisms that drive this result: first, only regions in the lower half of the trust distribution benefit from an increase in trust; and second, as smaller firms lack internal capabilities such as research and development and therefore resort to informal collaboration, the trust–innovation relationship is stronger in regions with a large share of small firms. We argue that regional innovation work differently across regions and different mechanisms of cooperation can be leveraged to achieve innovation success. Our results highlight the role of trust during a certain stage in the process of regional economic development, since both low trust and a larger share of small business constitute characteristics of less developed regions.Key words: innovationtrustregional innovation systems AcknowledgmentsThe authors gratefully acknowledge comments from the members of the DFG-network on “The dynamics of innovation systems” which helped to improve the article and input received from participants at the Research Colloquium at the Chair of Economic Policy and SME research at the University of Goettingen.Notes1 OECD RegPat database, https://www.oecd.org/sti/inno/intellectual-property-statistics-and-analysis.htm#ip-data.2 European Social Survey—European Research Infrastructure, https://www.europeansocialsurvey.org/.3 Eurostat, https://ec.europa.eu/eurostat/data/database.4 Office of National Statistics (UK), gross domestic product https://www.ons.gov.uk/economy/grossdomesticproductgdp.5 Heritage Foundation, 2022 index of economic freedom, https://www.heritage.org/index/pdf/2022/book/2022_IndexofEconomicFreedom_Highlights.pdf.6 Each inventor is assigned a patent share that is equal to the inverse of the number of inventors of a patent.7 The following questions are included: 1. “Generally speaking, would you say that most people can be trusted, or that you can’t be too careful in dealing with people?” 2. “Do you think that most people would try to take advantage of you if they got the chance, or would they try to be fair?” 3. “Would you say that most of the time people try to be helpful or that they are mostly looking out for themselves?”8 ESPON database, https://database.espon.eu/.