Innovation support policies need to be better tailored to rural realities. Although patenting rates in rural areas are one-sixth of those in metro areas, this masks the true scale of innovation in rural areas. Drawing on a global survey of 23 OECD countries, three thematic reports and five national case studies, this report reveals that rural innovation is different to urban innovation, with disproportionately higher shares of innovations from incremental process improvements, community-based initiatives, smaller scale innovation in niche markets and adaptive service delivery models. These fall outside the scope of mainstream innovation support mechanisms that typically target formal R&D and patent systems. Policies need to offer broader forms of support to foster innovation systems that are flexible and responsive to rural realities, underpinned by more granular and place-sensitive data to better capture how innovation unfolds across rural places.
Innovation in rural areas is a strategic driver of resilience and competitiveness in a context of rapid transformations. Innovation by and for rural areas is an opportunity to overcome the usual challenges of remoteness, thin markets and narrow economic bases. Furthermore, developing solutions for public service delivery, market access, the development of social enterprises, and renewable energy can turn rural places into laboratories for environmental and digital transitions, thus contributing to national economic resilience. These rural laboratories can also serve as spaces for experimentation, where local actors, firms and communities co-create and test new approaches in flexible regulatory settings. Governments can further enable rural innovation by simplifying access to support through one-stop shops and by streamlining regulations, ensuring that administrative processes help rather than hinder new ideas and initiatives.
Technology is a key enabler, and widespread adoption is vital for rural areas. It can make rural production more efficient (e.g. with automation) and flexible (e.g. with additive manufacturing), facilitate connections to wider markets (e.g. with drone-based delivery), and enhance service access (e.g. with telemedicine). While artificial intelligence and automation are often seen as threats to employment, in rural regions they can be key drivers of productivity and long-term economic viability in the face of declining populations, which is true in over 40% of rural regions. There are signs of rural vitality thanks to the use of technology, but many barriers persist in its take-up. To fully harness technological potential, rural firms and entrepreneurs need stronger support to adopt and adapt digital tools, while innovation networks should help scale up promising initiatives and create economies of scale across regions.
Several barriers limit the ability of rural businesses and public institutions to adopt technology and to absorb and generate new ideas. An OECD survey finds that frequently cited barriers for innovation in rural regions were access to public services, which includes physical and digital infrastructure (33%) and skills availability (30%), with limited finance (11%) and lack of business support (10%) also reported. Important gaps also persist in high-speed broadband coverage, with one-third of rural households still lacking access.
This report offers a policy toolkit with six pillars to support innovation in rural regions. These policy actions are tailored to rural realities and seek to activate and stimulate innovation by rural firms and entrepreneurs as well as promote collaboration, networks and knowledge exchanges to build economies of scale and scope. Clear recommendations for each pillar are accompanied by detailed examples of policies and initiatives emerging from the five case studies and other country examples. The six pillars are not mutually exclusive and can be viewed as a holistic approach to support rural innovation:
1. Establish the preconditions for innovation: this is about addressing the pervasive gaps in skills, digital infrastructure and service access to strengthen the foundations for innovation in rural regions.
2. Design for rural entrepreneurs: this is about designing policies fit for rural entrepreneurs and businesses, recognising that entrepreneurship and innovation are intimately linked. Programmes can support diverse demographic groups among residents (e.g. young entrepreneurs, Indigenous initiatives) to broaden the pool of potential innovators. Policy instruments can be tailored to rural firms, which are often small and family run. These can include innovation vouchers, simplified grants and succession planning advice.
3. Build networks and linkages: This is particularly important in rural regions, which often lack the agglomeration benefits of larger urban centres and face challenges related to remoteness, smaller markets and limited local networks. These enable rural firms and other innovators to engage with a wide array of innovation partners (e.g. universities, foreign investors) and exchange knowledge, ideas and resources. Regional linkages also help build scale, including by partnering with adjacent rural areas to create wider ecosystems and pursue joint projects and funding or through rural-urban links that can also provide expanded access to larger markets.
4. Experiment for local solutions: this is about facilitating the creation, test and scale of solutions by and for the local economy, involving a wider set of local actors and different types of businesses in more open innovation processes. Relevant actions include creating the spaces to collaborate and pilot initiatives, with regulatory flexibility (e.g. sandboxes and living labs). This allows co-creating solutions in low-density areas and de-risking experimentation. Local entrepreneurship will be boosted by recognising social enterprises as first-class actors alongside high-tech. Public sector and social innovation also contributes to new local solutions, notably in public service delivery.
5. Facilitate with simplified and co-ordinated support: This is especially relevant in rural regions, where entrepreneurs and firms are often far from central institutions, have limited access to information on available support programmes and can face greater difficulties navigating administrative procedures. This involves co-ordinating and simplifying government services with one-stop shops and streamlined licensing for business creation. National and subnational authorities can also co-ordinate policies for skills, finance and trade services to simplify business support locally, which can be facilitated by multilevel governance.
6. Measure and learn with wide rural data access. Good governance involves setting up monitoring and evaluation of initiatives to improve the offering over time. Mechanisms to anticipate economic, market and other trends also allow for adapting policies accordingly. Policy effectiveness can be improved by wide public access to data reflecting rural realities, which involves strengthening the rural lens in existing statistical frameworks nationally and regionally with more granular evidence.