Breaking the Bottleneck of Innovation Transformation: Long-term Research on Spanish Regions Reveals the Misallocation of Manufacturing Innovation Investment and Its Implications

Innovation Input Does Not Equal Innovation Output: A Long-Overlooked Industrial Proposition

In an era where global manufacturing competition increasingly depends on technology, governments and enterprises around the world are continuously increasing R&D investment. However, a frequently simplified assumption is that as long as innovation input increases, output will naturally rise as well. A recent Spanish regional study published in the journal *Economies* challenges this linear thinking with long-term panel data.

Based on the Technological Innovation Panel data from the Spanish Ministry of Economy and Competitiveness, the study examined the long-term relationship between innovation effort (internal R&D investment, external R&D expenditure) and innovation output (patents, new products, process improvements). The results show that, from the average perspective of Spain as a whole and other regions, internal and external innovation efforts have the strongest positive effect on innovation output. Surprisingly, however, in Catalonia, Madrid, and Andalusia—the regions with the most dynamic economies and the strongest industrial bases—the positive effect of innovation effort on output is actually the lowest.

The Paradox of Core Industrial Regions: Why Do High-Investment Areas Have Lower Conversion Efficiency?

This finding should not be simply interpreted as "R&D investment is useless"; rather, it should prompt us to re-examine the transmission mechanism of the innovation system. Catalonia and Barcelona have large manufacturing clusters, advanced automotive and chemical industries; Madrid is Spain's technology and financial center, hosting a large number of research institutions and high-tech enterprises. In theory, these regions should possess stronger innovation conversion capabilities. However, the empirical results of the study indicate that the marginal output of innovation effort in these regions may already be in a diminishing range—when R&D investment density reaches a certain level, if there is a lack of matching industrial structure, human resource reserves, or cross-sector collaboration mechanisms, additional investment is difficult to convert into proportionate output.

Deeper reasons may involve the "absorptive capacity" of regional innovation systems. Regions with strong industrial bases often have relatively rigid production organization models; traditional manufacturing enterprises may absorb and apply R&D more slowly than emerging regions that build innovation ecosystems from scratch. In addition, as a city dominated by administration and services, Madrid's innovation input partly flows into non-manufacturing fields such as fintech or business services, and such output is difficult to fully capture in traditional patent and new product indicators.

Regional Divergence in Global Supply Chain Restructuring: Perspectives from Spain

Spain's regional innovation differences actually reflect a widespread phenomenon in the global manufacturing relocation process. When multinational enterprises reconfigure their supply chains, they assess not only labor costs and infrastructure but also local innovation conversion efficiency. In North America, Europe, and Asia, we observe a similar "innovation divergence": between traditional industrial core areas (such as Germany's Ruhr region and the U.S. Great Lakes region) and emerging manufacturing belts (such as central and western China, Vietnam, and northern Mexico), R&D investment intensity and output conversion efficiency present a complex combination.For supply chain managers, this means that when deciding where to locate manufacturing bases, it is not enough to simply look at a region's total R&D spending or patent stock; rather, one should analyze the structural rate of return on R&D investment. Some manufacturing clusters in Southeast Asia, despite having a weak technological foundation, can generate remarkably efficient output from internal innovation efforts by introducing external technology and management experience. Conversely, some mature industrial zones may show signs of diminishing marginal returns on innovation investment due to industrial lock-in effects.

Implications for Industrial Policy: From Emphasizing Inputs to Emphasizing Synergy

This study offers industrial policymakers an opportunity to recalibrate their policy tools. Over the past few decades, countries have commonly used tax incentives, fiscal subsidies, and public R&D funds to stimulate corporate innovation, but have often neglected differences in transmission across regions. The study suggests that coordination mechanisms between research and training centers should be established, and emphasizes joint participation at both the national and regional levels to design innovation policies that fit the business environment of enterprises.

• Specifically for manufacturing upgrading, policy should not focus only on total R&D expenditures, but also on:
• The efficiency of knowledge flows among universities, research institutions, and enterprises within the region;
• The alignment between vocational education systems and the needs of advanced manufacturing;
• The ability of small and medium-sized enterprises to absorb R&D results and translate them into commercialization;
• The degree of innovation synergy across the upstream and downstream supply chain.

In the context of accelerating penetration of automation and Industry 4.0, many Spanish SMEs are facing pressure for digital transformation. If innovation investment cannot be effectively converted into process improvements and product iterations, they will be at a disadvantage when competing with Chinese or Eastern European manufacturers. The regional differences revealed by the study precisely explain why the same digital incentive policies may produce completely different implementation outcomes in different regions.

A Long-Term Perspective on Industrial Structural Change

Unlike most studies that rely on short-term samples, this study uses long-term panel data, which makes its conclusions more robust. Technological innovation is a cumulative process; the short-term correlation between input and output is often disrupted by noise such as economic cycles and policy fluctuations. From a long-term perspective, the impact of R&D investment on output experiences a lag period of several years or even more than a decade. Such cross-cycle observation also applies to global supply chain analysis—corporate footprint adjustments and supply chain restructuring are themselves decisions made on a ten-year timescale.

Currently, global manufacturing is undergoing profound regional restructuring. Friend-shoring, nearshoring, and strategic autonomy policies are advancing simultaneously in Europe and the United States. As Spain serves as the southern gateway of Europe, the performance of its regional innovation system has indicative significance for the competitiveness of Southern European manufacturing. If core regions such as Catalonia fail to improve innovation conversion efficiency, Southern Europe will face the trap of "high input, low output" when taking on the wave of European reindustrialization.

Conclusion: Innovation Conversion Efficiency Becomes a New Dimension of Manufacturing CompetitionThis study uses Spain as a sample and proposes a generalizable industrial analysis framework: measuring the manufacturing competitive advantage of a region or country requires not only looking at how much R&D is invested, but also at how that investment is absorbed, combined, and commercialized. For enterprises, this means that when planning the locations of R&D centers and factories, they should assess the quality of the innovation ecosystem in the target region, rather than focusing solely on subsidy amounts or patent counts.

In an era of heightened supply chain risks and frequent technology blockades, innovation conversion efficiency is becoming a core indicator of a country's or region's manufacturing resilience. Spain's experience shows that simply increasing investment cannot automatically solve innovation challenges; only through structural reforms in regional coordination, industrial policy, and training systems can the gap between innovation effort and output be narrowed. This may be the most valuable lesson for global manufacturing in the next round of upgrading.

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*Reference source: Al-Mahdawi, K.H.S.; Sánchez-Sellero, P.; Rodil-Marzábal, Ó. Innovation Across Regions: Exploring the Long-Term Link Between Innovation Effort and Outputs in Spain. *Economies* 2026, 14, 324. https://www.mdpi.com/2227-7099/14/8/324*