COVID-19 changed the geography of innovation funding in Finland

Teemu Makkonen

It is generally considered that firms in urban areas outperform their rural peers when it comes to innovation: firms in urban locations invest more on innovation inputs, produce more innovation outputs and are more prone and successful in applying for public funding for their innovation activities.

The accuracy of these statements concerning the urban–rural gap in innovation in Finland was formally analysed as a part of the COSPIN project. The focus was laid on the statement concerning the urban premium in innovation funding. Specifically, the COSPIN project analysed the geographical distribution of Business Finland funding recipients.

By utilising geo-tagged firm-level data provided by Business Finland and the urban–rural typology of the Finnish Environment Centre we were able to distinguish which of the innovation funding recipients are located in a rural and which of them are located in an urban municipality.

The results of our analyses show that, indeed, generally urban firms have faired better than their rural counterparts in terms of receiving public funding for their innovation activities. During COVID-19 this gap has, however, narrowed.

As shown in the figure below, the urban–rural gap is driven by the small rural firms that have “lacked” behind. However, further analyses show that during COVID-19, it has been specifically these small rural firms that have been able to catch up the gap to their urban and larger counterparts:

 

However, this change might be attributable to the specific funding instrument implemented during COVID-19.

In Finland, the COVID-19 pandemic implied a massive increase in the volume of public innovation support: Business Finland funding increased from the ca. 570 million euros in 2019 to ca. 1740 million euros in 2020. The majority of this support, ca. 990 million euros, was distributed to companies via Business Finland’s funding programme for business development in disruptive circumstances (“COVID-19 instrument”). The COVID-19 instrument was devised as a means to help the firms to find innovative solutions to taggle the negative effects of COVID-19 to their business. The instrument provided attractive conditions of covering up to 80% (out of which 70% could be paid in advance) of the total costs of the intended innovation activities. The maximum funding volume was, however, relatively small: up to 100 000 euros. As such, the funding instrument was potentially more appealing to small rather than large firms – as our results also suggest.

It is, thus, important to bear in mind that the results of the narrowing urban–rural innovation gap reflect this massive increase in Business Finland funding through the “COVID-19 -instrument”. Future will tell whether this change is a permanent one, or whether it was, in fact, tied to this specific funding instrument of Business Finland applied during COVID-19.

The full open access publication can be accessed here:

https://www.tandfonline.com/doi/full/10.1080/04353684.2022.2093252