Many factors help boost business innovation, and in turn economic growth. These also include factors that are fundamentally spatial and related to the business environment of the region within which firms operate, such as the institutional and regulatory framework, the market conditions firms face, and supportive infrastructure for transport, digital networks and research. Other important factors that also have spatial characteristics relate to access to strategic resources, such as workers with the right skills and access to finance for investment and operations.
These spatial factors can differ substantially within countries, with particularly large impacts on small and medium-sized enterprises (SMEs), which tend to be more dependent on, and sensitive to, local conditions and resources than larger firms.
This report examines two aspects of the regional business environment that are critical to understanding differences in productivity growth within countries: regional institutional quality and access to debt finance, the primary source of financing for most firms. Even if the framework conditions shaping institutional quality and access to finance are often set at the national level, their impact depends on the characteristics of the regional business environments in which firms operate.
Both national and subnational governments can take steps to boost business in regions. First, when developing regulation, they can integrate regulatory impact assessments, adopt agile approaches in areas with rapidly evolving technology and consider regularly reviewing existing regulation to ensure its relevance. Second, they can reduce administrative burdens and compliance costs by accelerating the digitalisation of administrative processes and implementing “once-only” approaches to information provision to the public sector. Establishing one-stop shops at the subnational or national level, with the option to tailor services to local needs, can streamline interactions between businesses and public authorities and reduce administrative burdens. Third, governments can boost business by improving access to finance, ensuring a competitive regional banking market and providing public support through credit guarantees and public development banks to viable firms facing disproportionate challenges in obtaining financing, particularly in regions with limited banking options.
This report was prepared by the OECD Centre for Entrepreneurship, SMEs, Regions and Cities (CFE), as part of the Programme of Work and Budget of the OECD Regional Development Policy Committee (RDPC) and the Committee on SMEs and Entrepreneurship (CSMEE) as part of a project on “What holds back firms in OECD regions?”, co-funded by the European Union.