Recent prescriptions for an updated EU Cohesion Policy recommend giving it new purpose and a meaningful position in the EU’s quest for strategic autonomy, all the while preserving its core promise of economic development and convergence. Our new study shows the technological DNA of European regions in critical green and digital technologies and reveals untapped potential for regions of varying economic development to collaborate so that all regions can benefit.

The future competitiveness and prosperity of Europe’s economy depends on the greening and digitizing of Europe’s regions. The success of the so-called twin transition depends not just on improving the EU’s capacity to innovate in green and digital technologies, but also spreading the benefits of that innovation across its regions so that it is a transformation for all, not just some regions.

However, there is an innovation divide that threatens to worsen cohesion between EU regions as the richest and most innovative continue to pull ahead of the pack in the technologies that will shape the future EU economy.

It is therefore important at this juncture, with the future of EU Cohesion Policy in the spotlight, for policymakers at the EU, national and regional level to explore ways for regions to develop mutually beneficial linkages around twin transition technologies with other regions across the EU.

The new study from the Europe’s Economy project, Technological capabilities and the twin transition in Europe: Opportunities for regional collaboration and economic cohesion, evaluates the complementarity in twin transition technological profiles between European NUTS-2 regions and gives a clear view of the untapped potential for linkages between regions of different economic development levels and across national borders.

Europe’s geography of twin transition technology

In the 288 NUTS-2 regions considered in the study, 211,790 patents were developed from 2017-2021 in a green or digital technology. But this patent output is far from evenly distributed across regions. Following the distinction of regions in the EU’s Cohesion Policy of more developed regions (with a regional GDP above the EU average), transition regions (between 75% and 100% the EU average in regional GDP), and less developed regions (less than 75% average regional GDP), the study finds that the more developed EU regions currently produce 80% of the patents in twin transition technologies.

Particularly in patents for digital technologies, there is also a core-periphery divide, meaning more developed regions in Europe’s center outperform transition regions and less developed regions in the South and East. Scandinavian regions also demonstrate a high patent output in digital technology, especially Stockholm and Helsinki.

 

For green technologies, for which there are fewer patents overall, a concentration is also apparent. The development of new technologies remains focused in Europe’s more developed regions.

And yet, regional patent output is only part of the story. No region is a master of all technologies alone; all regions stand to gain from finding other regions with complementary technological capabilities that are relevant for mastering the twin transition.

Indeed, already around half of the patents analyzed in the study were the result of an inter-regional collaboration, but three-fourths of those linkages were within national boundaries. EU regions should ask themselves if they have looked sufficiently far afield to find the right collaborators to accelerate their development of future twin transition technologies.

Combining capabilities to develop new technologies

To find the right matches for a given region’s technological profile, the study uses the concept of “relatedness” and “complementarity”. The more related a region’s different technological capabilities are, the less risky it is for them to invest in innovation in those areas, thereby increasing their potential to do so. If another region can add to that region’s technology mix with their own patents in related technologies, that constitutes a complementary match.

Each region’s technological capabilities are also rated for their complexity. Patents for Artificial Intelligence are, for example, more complex than patents for sustainable packaging materials or HVAC systems due to the resources they require, and the education required to develop cutting edge advancements in their respective fields.

Developing a profile of related, complex technologies gives a region a leg-up economically over others. That region’s hard-to-replicate advanced technology secures a foundation for future competitiveness and economic growth.

In other words, if a region has both high relatedness density and high complexity in its patent output, developing new related technologies is relatively low-risk and high-reward. If another region can complement them in relatedness and complexity, then a linkage could be beneficial.

In contrast, both low-relatedness and low-complexity in current technological capabilities means the path ahead for a given region is high-risk, low-reward. This is the worst situation to be in. Seeking inter-regional linkages where low relatedness exists would be a poor strategy.

More developed regions in the EU show higher potential to develop digital technologies than their poorer counterparts. These more developed regions already demonstrate a huge lead in the volume, relatedness, and complexity of their digital technology patent output.

The potential to develop new twin transition technologies looks different for the EU’s transition regions. They show a weak potential in most digital technologies, especially in highly complex digital technologies. They simply cannot compete with the comparative advantage of more developed regions. Transition regions do however have potential in many green technologies, even exceeding that of more developed regions.

In the case of transition regions, there is low-risk potential in further developing green technologies, given the relatedness density of many of their green technology patents. But this also offers low-rewards to their economies—even though they aid in the overarching goal of the green transition.

In a final step, the study assesses the untapped potential in inter-regional linkages with respect to the twin transition technologies by determining whether there is strong complementarity between regions’ respective technological capabilities. The results show massive untapped potential for EU regions to combine their capabilities for the advancement of new green and digital technologies.

Pursuing complementary technology linkages across EU borders

To strengthen cohesion and develop Europe’s technological capabilities, inventors and businesses should pursue twin transition technologies in which their home region has high potential and foster inter-regional linkages with other regions that demonstrate complementary technologies to help in this regard.

In this vein, policies should aim to exploit potential through the support of entrepreneurship, educational reforms, research capacity-building and institutional change, to ensure local opportunities are activated and obstacles are removed that prevent the mobility of resources for the development of new twin transition technologies.

The good news is the study finds numerous opportunities within green and digital technologies to match regions across the EU—far more than can even be acted upon. The result is a broad menu of linkage options in need of a guiding principle. Where possible, this principle should be to link more developed regions with transition and less developed regions with greater frequency.

This will be particularly relevant when developing and refining the EU regions’ Smart Specialisation strategies and when building inter-regional innovation partnerships in the context of the cohesion policy framework 2021-2027.

About the authors

Thomas Schwab is Project Manager for the Europe’s Future Program at the Bertelsmann Stiftung. He applies a data-driven approach to economic analysis by employing data science and econometric methods.

Nathan Crist is Project Manager in the Europe’s Future Program at the Bertelsmann Stiftung working on the Europe’s Economy Project.

Download the study here

Read more about Cohesion Policy and the Twin Transition 

Digital and Green Transition Threatens to Widen the Gap between EU Regions (globaleurope.eu)

Cohesion Policy’s Blind Spot: Strong Regional Institutions are Crucial to Implementing Effective Growth Strategies on the Ground - Global & European Dynamics (globaleurope.eu)

3 Times EU Cohesion Policy Has Been Used to Address Recent Crises - Global & European Dynamics (globaleurope.eu)

Upward Convergence? The History of EU Cohesion - Global & European Dynamics (globaleurope.eu)

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