Can regional policy affect firms' innovation potential in lagging regions?

The initiation of innovation in lagging regions has become one of the most pressing issues in regional policy. Several studies have attempted to identify the factors that influence the creation and development of product innovation in firms located in lagging regions. The identification of these factors could assist regional decision-makers in promoting technological innovation in such regions. <p> The research question investigated in this study is whether the effectiveness of such regional policies is related to the degree of regional innovation potential and innovativness. This paper tries to deal with this central question by implementing an extended empirical model developed by the author. The Extended Model combines two prevailing probability models: LOGIT and Bayesian decision theory. <p> The data analyzed in the paper were collected from a field survey of a sample of 211 industrial firms located in the northern region of Israel. In the first stage of the analysis, the model was used to identify variables influencing product innovation; the second stage investigates changes in the probability of producing innovations in the defined region. The results of the analyses point to the effectiveness of a regional policy that could promote and support the creation of factors fostering technological innovation in selected industries in lagging regions.