Art. No. 11 Ginzinger, F. S. V.

(2022) 1 / 11

1. NO.

11

2. AUTHOR / DATE TITLE

Ginzinger, F. S. V. (2022). Spatial dependence in the regional innovation

performance of SME

3. RES / REV PAPER

Masters Thesis in Economics

4. MOTIVATIONS (ISSUE)

As these firms comprise much of the EU’s total economy, their competitiveness

needs to be maintained. Thus, innovation processes play an essential role for

SMEs. Engagement in innovative activities is regaRDed as crucial for SMEs to

foster their performance and competitiveness compared to other firms (Acs &

Audretsch, 1990; Soni et al., 1993).

Feldman and Kogler (2010) drew attention to the importance of the nexus between

knowledge exchange and geographical location, which contributes to explaining

process dynamics in innovation. Moreover, in light of European-wide funding

programs for fostering SME innovation, it is essential to emphasize the location of

innovative activities.

If that is failed to be done, the achievement of the full potential of these policies is

harmed, and policies remain ineffective (de Dominicis et al., 2013). Hence, this

paper examines innovative activity from a geographical dimension by looking at

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Art. No. 11 Ginzinger, F. S. V. (2022) 2 / 11

the spatial distribution of SME innovation and accounting for possible spatial

effects.

5. RESEARCH GAP

However, the previous empirical literature does not account for possible spatial

effects of innovative activities of SMEs in European regions. Therefore, this paper

focuses on determining whether the innovation performance of SMEs across

European NUTS3 regions is spatially dependent. In particular, it raises the question

of whether the innovation of SMEs in a region is driven by the level in surrounding

regions, thus implying that the region’s innovation performance is affected by the

spatial interaction with other regions.

6. PROBLEM STATEMENT (A problem statement is an explanation in research

that describes the issue that is in need of study. What problem is the research

attempting to address? Having a Problem Statement allows the reader to

quickly understand the purpose and intent of the research)─penceritaan dari

awal hingga akhir utk menjustifykan the need for this research

Considering the relevance of innovative activities of SMEs in the EU, research on

the determinants driving innovation among these enterprises must be looked at

more closely. Feldman and Kogler (2010) drew attention to the importance of the

nexus between knowledge exchange and geographical location, which contributes

to explaining process dynamics in innovation. Moreover, in light of European-wide

funding programs for fostering SME innovation, it is essential to emphasize the

location of innovative activities.

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Art. No. 11 Ginzinger, F. S. V. (2022) 3 / 11

If that is failed to be done, the achievement of the full potential of these policies is

harmed, and policies remain ineffective (de Dominicis et al., 2013). Hence, this

paper examines innovative activity from a geographical dimension by looking at

the spatial distribution of SME innovation and accounting for possible spatial

effects. Given the heterogeneous characteristics across regions, this analysis must

contain all European regions at the subdivisional administrative level to consider

changes in innovation performances not only across national but also regional

boRDers (Parrilli et al., 2020). Some scholars have studied the existence of

spillovers from one regional innovation system to others in proximity. There is

evidence that regional innovation performances are indeed affected by spatial

dependence (Furková, 2018; Moreno et al., 2005). However, the previous empirical

literature does not account for possible spatial effects of innovative activities of

SMEs in European regions. Considering the different characteristics of those firms,

which mainly participate in innovative activities through the involvement in non-

R&D activities and inter-firm collaboration, spatial effects could be potentially

different from previous studies.

Therefore, this paper focuses on determining whether the innovation performance

of SMEs across European NUTS3 regions is spatially dependent. In particular, it

raises the question of whether the innovation of SMEs in a region is driven by the

level in surrounding regions, thus implying that the region’s innovation performance

is affected by the spatial interaction with other regions. In doing so, this thesis

contributes to the existing literature by looking at the innovation of European SMEs

from a spatial perspective and employing a spatial econometric approach.

7. RESEARCH QUESTIONS

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Art. No. 11 Ginzinger, F. S. V. (2022) 4 / 11

In particular, it raises the question of whether the innovation of SMEs in a region is

driven by the level in surrounding regions, thus implying that the region’s innovation

performance is affected by the spatial interaction with other regions.

8. RESEARCH OBJECTIVES

this paper focuses on determining whether the innovation performance of SMEs

across European NUTS3 regions is spatially dependent.

9. THEORY

None

10. CONCEPTUAL THEORETICAL FRAMEWORK MODEL

Moran’s I is computed by the following equation:

with y being the dependent variable for region 𝑖 and region 𝑗 respectively, 𝑛 being

the number of observations, 𝑞 being the sum of the weights, 𝑧 being the deviation

of the variable from its mean, and 𝑤.

Equations 9 and 10 present the baseline models for the innovation performances

of SMEs introducing product and business process innovations, respectively.

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Art. No. 11 Ginzinger, F. S. V. (2022) 5 / 11

11. RESEARCH HYPOTHESES (Research hypotheses are basic statements that

explain the potential relationships between variables of a theory or of different

theories)

The null hypothesis of the Moran’s I test statistic is that there is no evidence of

spatial autocorrelation. If the null hypothesis of no spatial autocorrelation is

rejected, it can be inferred that spatial dependence is present in variable 𝑦 (Floch

& Le Saout, 2018).

12. RESEARCH NOVELTY (apa sumbangan nya kepada literature sekarang?)

In doing so, this thesis contributes to the existing literature by looking at the

innovation of European SMEs from a spatial perspective and employing a spatial

econometric approach.

13. SAMPLE

Secondary data

14. INDUSTRY/SECTOR

SMEs in EU

15. COUNTRY (IES)

EU

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Art. No. 11 Ginzinger, F. S. V. (2022) 6 / 11

16. MAIN VARIABLES & RESOURCES

VARIABLE NAME VARIABLE LABEL TYPE OF SOURCE

CODIFICATION
SME product innovation Inno_prod SME introducing product innovations as share of total SME Normalized (0-1) RIS 2021
(%)
SME process innovation Inno_proc SME introducing business process innovation as share of Normalized (0-1) RIS 2021
total SME (%)
Public r&d expenditure Pub_RD R&d expenditures in the public sector as share of total GDP Normalized (0-1) RIS 2021
(%)
Private r&d expenditure Priv_RD R&d expenditures in the business sector as share of total Normalized (0-1) RIS 2021
GDP (%)
Non-r&d expenditure Non_RD Non-r&d expenditures as percentage of total turnover (%) Normalized (0-1) RIS 2021
SME collaboration Collab Innovative SME collaborating with others as share of SME Normalized (0-1) RIS 2021
(%)
Public private co- Pub_priv_c Public-private co-publications per million population Normalized (0-1) RIS 2021
publications
Peripherality dummy Periph Dummy variable, describing peripheral regions, which are Binary Eurostat
considered remote or predominantly rural
Source : Author’s illustration based on european commission (2021)
* The RIS 2021 is a regional extension of the European Innovation Scoreboard (EIS) and contains data on innovation-related
indicators for 240 regions in 26 countries across Europe from 2014 to 2021.

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Art. No. 11 Ginzinger, F. S. V. (2022) 7 / 11

17. METHODOLOGY

Instead, an estimation method that is not as restrictive as OLS and thus consistent

in the presence of spatial autoregressive processes should be employed. One such

method appears to be Maximum Likelihood (ML) (Lee, 2004). Essentially, this

method rests on the assumption that the disturbances are normally distributed.

However, ML is only suggested to be used in cases of homoskedastic

disturbances.

this thesis employs a Generalized Spatial Two-stage Least Squares (GS2SLS)

with heteroskedastic innovations, introduced by Arraiz et al. (2010).

The GS2SLS estimation method employs both Generalized Methods (GM) and

instrumental variables (IV).

18. FINDINGS

The spatial concentration of innovative activities across European regions has

induced spatial polarization, causing different levels of SME innovation

performance across European regions.

This paper finds evidence for the presence of spatial dependence in the level of

SME innovation performance for both product and business process innovations.

The test results show positive spatial autocorrelation in both dependent variables,

indicating that regions with high levels of SME innovation performance in both

types of innovations tend to be surrounded by regions with high levels, and vice

versa. Spatial dependence appears to be stronger for product innovation. The

spatial regression analysis investigates which innovation drivers explain the level

of SME innovation performance when accounting for spatial interactions between

regions. The regression results imply that innovation is driven by non-R&D

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Art. No. 11 Ginzinger, F. S. V. (2022) 8 / 11

activities and collaboration, as SMEs use these to compensate for their smaller

intern capabilities and lack of resources that restrain them from R&D. Moreover,

differences between the two types of innovation can be observed.

While R&D expenditures still appear to have significant effects on the performance

of SMEs involved with product innovation, innovations related to business

processes do not require access to R&D expenditures.

19. DISCUSSION

The spatial concentration of innovative activities across European regions has

induced spatial polarization, causing different levels of SME innovation

performance across European regions.

This paper finds evidence for the presence of spatial dependence in the level of

SME innovation performance for both product and business process innovations.

The test results show positive spatial autocorrelation in both dependent variables,

indicating that regions with high levels of SME innovation performance in both

types of innovations tend to be surrounded by regions with high levels, and vice

versa.

Spatial dependence appears to be stronger for product innovation. The spatial

regression analysis investigates which innovation drivers explain the level of SME

innovation performance when accounting for spatial interactions between regions.

The regression results imply that innovation is driven by non-R&D activities and

collaboration, as SMEs use these to compensate for their smaller intern capabilities

and lack of resources that restrain them from R&D. Moreover, differences between

the two types of innovation can be observed.

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Art. No. 11 Ginzinger, F. S. V. (2022) 9 / 11

While R&D expenditures still appear to have significant effects on the performance

of SMEs involved with product innovation, innovations related to business

processes do not require access to R&D expenditures.

20. LIMITATIONS

These flaws concern the normalization of the data, missing or imprecise data for

some regions, and the limited number of indicators covering the DUI mode of

learning of SMEs.

21. RECOMMENDATIONS - mainly on methodology

To make policies more effective for fostering the innovation performance of SMEs

and thus contributes to their competitiveness, they need to be tailored more

appropriately to these firms’ innovation processes and dynamics.

innovation funding programs should change their objective to foster SMEs’ non-

R&D activities and collaborations with other firms.

location-specific policies are needed to increase the innovation performance of

SMEs and induce competitiveness among these firms in Europe.

Future research can build upon the paper’s contributions as well as limitations.

Doing so will help unleash new insights into the product and process innovation

processes of SMEs as well as the role of geography in SME innovation, which can

be used for adequate policy recommendations.

22. REMARKS

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Art. No. 11 Ginzinger, F. S. V. (2022) 10 / 11

23. EAGLE REVIEW: AUTHOR'S CONTRIBUTION TO THE FIELD, SUPPORT

TO MY STUDY, UNSUPPORTIVE TO MY STUDY, LEFT UNMENTIONED IN

THE ARTICLE HOWEVER IS CRUCIAL IN MY STUDY

24. EXTRA INFORMATION FOR FUTURE USE

Contohi the way this author delivered his problem statement :

Considering the relevance of innovative activities of SMEs in the EU, research on

the determinants driving innovation among these enterprises must be looked at

more closely.

Feldman and Kogler (2010) drew attention to the importance of the nexus between

knowledge exchange and geographical location, which contributes to explaining

process dynamics in innovation. Moreover, in light of European-wide funding

programs for fostering SME innovation, it is essential to emphasize the location of

innovative activities.

If that is failed to be done, the achievement of the full potential of these policies is

harmed, and policies remain ineffective (de Dominicis et al., 2013). Hence, this

paper examines innovative activity from a geographical dimension by looking at

the spatial distribution of SME innovation and accounting for possible spatial

effects. Given the heterogeneous characteristics across regions, this analysis must

contain all European regions at the subdivisional administrative level to consider

changes in innovation performances not only across national but also regional

boRDers (Parrilli et al., 2020). Some scholars have studied the existence of

spillovers from one regional innovation system to others in proximity. There is

10 / 11
Art. No. 11 Ginzinger, F. S. V. (2022) 11 / 11

evidence that regional innovation performances are indeed affected by spatial

dependence (Furková, 2018; Moreno et al., 2005).

However, the previous empirical literature does not account for possible spatial

effects of innovative activities of SMEs in European regions. Considering the

different characteristics of those firms, which mainly participate in innovative

activities through the involvement in non-R&D activities and inter-firm

collaboration, spatial effects could be potentially different from previous studies.

Therefore, this paper focuses on determining whether the innovation performance

of SMEs across European NUTS3 regions is spatially dependent. In particular, it

raises the question of whether the innovation of SMEs in a region is driven by the

level in surrounding regions, thus implying that the region’s innovation performance

is affected by the spatial interaction with other regions. In doing so, this thesis

contributes to the existing literature by looking at the innovation of European SMEs

from a spatial perspective and employing a spatial econometric approach.

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