With OECD countries in the midst of a slowdown in trend productivity growth, coupled with the challenges of a number of megatrends and global shocks, unlocking innovation has become more important than ever. This is especially important in rural places, where innovation creation and uptake lags behind metropolitan areas, weighing down on aggregate productivity, income levels and overall well-being.

OECD countries are currently in the midst of a global slowdown regarding innovation, in particular ground-breaking, productivity-inducing innovations, as witnessed by widespread anaemic productivity growth (OECD, 2019[1]). Lower productivity growth translates into lower long-term economic growth and, in turn, lower wages and well-being. This is why actions to drive innovation – a precursor of productivity growth (Aghion and Howitt, 1990[2]; OECD, 2016[3]; Romer, 1990[4]) – are so important. Those actions are particularly important for rural regions. Across large OECD regions (TL2) in European countries, high-technology (high-tech) innovation is associated with a five times higher increase in jobs when regions have larger shares of people living in non-metropolitan regions, as compared to those in more metropolitan regions.

OECD countries today are facing a global slump in innovation, with fewer innovations that radically change the way our society works and a concurrent productivity slowdown. This slowdown is affecting countries across the globe, impacting wages, well-being and economic opportunities (OECD, 2019[1]).

Designing policies for innovation through a rural lens can create better opportunities for rural regions. Yet there are challenges in ensuring measurement tools are not territorially blind and can capture innovation in rural places beyond the standard science and technology indicators. Re-evaluating how we measure and evaluate innovation helps in designing place-based policies to unlock rural innovation. This report calls for better measurement tools for rural innovation and reveals the importance of young start-up entrepreneurs to unlock rural innovation and its effects on driving outcomes in rural places.

How we define innovation in rural regions has an impact on how policies are designed. This chapter examines indicators that are relevant for unlocking innovation in rural regions. It first describes definitions on rural regions that are internationally comparable. Then is summarises measures of innovation most relevant for rural regions.

This chapter focusing on characteristics of entrepreneurs and start-ups as a key component to promoting innovation in rural regions. It then focuses its analysis down to understanding characteristics of one class of innovative entrepreneur, young founders that may hinder or encourage start-up activity. Finally, it explores a counter-factual exercise that attempts to address whether differences in entrepreneurship rates among young founders are driven by individual socio-economic characteristics.

This chapter first discusses the important role that social innovation plays for rural development. It then examines the effects of innovation on several dimension of well-being including on employment, productivity, household income and inequality in rural regions.