Decoding regional dynamics: institutions, innovation, and regional development in the EU

Kamila Borsekova, Samuel Korony, Andrés Rodríguez-Pose, Michal Styk and Hans Westlund

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The importance of institutions and innovation for regional development is well established. How these two factors interact under different historical legacies and urban-regional contexts remains, however, insufficiently understood. This paper identifies which combinations of institutional and innovation indicators most effectively classify regions into distinct developmental archetypes, revealing critical thresholds that redirect regional trajectories. Employing decision-tree analysis on 233 EU NUTS-2 regions, we analyse 15 indicators spanning institutional quality, technological readiness, business sophistication, and innovation. This methodology uncovers non-linear relationships that traditional approaches cannot capture. The findings demonstrate that institutional quality acts as a necessary condition for innovation-led growth. High-performing regions, predominantly in Western and Northern Europe, benefit from robust institutions and strong innovation outputs. Many lower-performing regions, particularly in Central and Eastern Europe, exhibit innovation potential but are constrained by governance deficits. By integrating institutional and innovation indicators within a single analytical framework, we underscore how addressing governance and innovation in tandem can result in balanced and sustainable growth across Europe.

Keywords: regional development; institutions; innovation; decision tree modelling; regional competitiveness (search for similar items in EconPapers)
JEL-codes: O40 R11 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2026-02-28
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Published in Papers in Regional Science, 28, February, 2026. ISSN: 1056-8190

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