Strong dynamics of innovation generation in regions are crucial for achieving national innovation policy objectives. In addition, innovation performance can contribute to improving the overall economic competitiveness of individual regions. Policy recommendations are therefore being sought by national science and technology and regional policy actors, as well as by the regions themselves.

Innovation is increasingly seen as the main source of growth for stronger, cleaner, fairer economies. This has been highlighted in recent key reports and strategies, such as the OECD Innovation Strategy and Europe’s Innovation Union. This broader approach has resulted in a renewed reflection on what innovation is and is used for. It also leads to a greater recognition of the importance of innovation for regional governments to support their social and economic development needs.

Over the past decade, the notion of innovation in OECD member countries has broadened, reflecting important changes in the dynamics, scope and patterns of innovative activities. These changes affect all developed countries or regions regardless of their institutional or structural specificities.2 While efforts have been made to improve the measurement of innovation,3 the implications of these changes are taken into account in the policy-making process with a certain time lag.

The Basque Country region in Spain is well known for its successful industrial transformation and high levels of wealth. Is the innovation system prepared to transition from a model of incremental innovation in manufacturing to a model based on science and other forms of knowledge? This chapter provides an overview of the Basque Country’s socio-economic trends, including sub-regional variations. It explores the factors driving the region’s growth and productivity, with an emphasis on innovation-related indicators, to explore the so-called “Basque competitive paradox”. The chapter concludes with an overview of the key actors in the regional innovation system.

Over the last 30 years, the Basque Country has implemented an STI policy driven by a need to boost industrial competitiveness adapted to the region’s industrial footprint. This chapter first reviews the evolution of STI policy in order to understand the region’s position today in terms of policy mix and system actors. It then analyses the region’s current STI policies and programmes to assess the relevance of different measures for current and future innovation challenges. Finally, it reviews aspects of the policy mix that merit further adjustment in future STI plans, including emerging areas in innovation policy.

This chapter first highlights the special position of the Basque Country within Spain with respect to its fiscal regime and STI competences. It then analyses the policy influence and level of resource flows from higher levels of government, notably Spain and the European Union. It reviews the horizontal governance arrangements within the Basque Country government among the different public and private stakeholders that are (or should be) responsible for setting the STI strategy and policy agenda as well as implementing a whole-of-government approach to innovation. The role of sub-regional entities, including the three provinces and local development agencies, is discussed as they are active in some instruments related to STI policy. Finally, the importance of filling gaps in monitoring and evaluation is raised.