This chapter highlights why innovation matters for rural competitiveness and prosperity amid global transformations. It first offers an overview of key economic and demographic trends vis-à-vis urban areas. Rural areas show signs of vitality amid otherwise unfavorable trends. It then identifies the many ways in which innovation can take shape in rural areas, and how technology can be a game changer for new sources of competitiveness and for accessing the support needed for entrepreneurship. Innovation that enables more capital-intensive activities and efficient processes will be critical to remaining competitive. Furthermore, broader types of social and community-based innovation directly contribute to maintaining well-being standards. However, the foundational enabling conditions need to be in place. The chapter ends by identifying the many barriers that rural entrepreneurs face for technology adoption and innovation and how to create the preconditions for a more supportive local ecosystem.
Rural Innovation Pathways
Abstract
Multiple global transitions affect rural places disproportionately. As identified in the OECD report Reinforcing Rural Resilience (OECD, 2025[1]), megatrends like climate adaptation, accelerated digitalisation, changing demographics and trade reconfigurations unfold with significant regional variation. Impacts in rural regions tend to be accentuated because of remoteness, thinner markets and less diversified economies. Often, the more remote the region, the greater the challenge.
When looked at in absolute terms, the rural outlook does not look promising: rural-urban economic gaps are large and increasing. The accumulated gap in GDP growth between 2001 and 2021 amounted to 17 percentage points (Figure 2.1). Productivity slowed down in rural areas after the 2008 global financial crisis and the difference in GDP growth rates vis-à-vis metro more than tripled.
Note: OECD average for metro and non-metro regions is calculated by giving every country the same weight. The data corresponds to the restricted OECD sample without Korea, covering 29 OECD countries.
Source: Based on the OECD Regional Database, and OECD Reinforcing Rural Resilience (OECD, 2025[1]).
Rural populations are shrinking and ageing. In 11 of the 29 OECD countries covered by the data in the OECD Reinforcing Rural Resilience report (OECD, 2025[1]), rural populations are declining overall, not only as percentage of national populations but also in absolute numbers. Rural regions close to cities are also exposed this trend, particularly if their populations tend more easily to move to urban areas. Almost half (47%) of rural areas close to small cities are experiencing population decline, while the proportion for remote rural regions is over 40%. Rural areas are also ageing faster: between 2001 and 2021, the old-age dependency ratio (people aged 65+ per 100 working-age) increased from 24 to 33, which doubled the difference with metro rates (which moved from 21 to 27 in the same period). Rural regions are thus often described through the lens of depopulation and decline.
Amid headlines of rural decline in the modern economy, pockets of rural dynamism are reshaping the narrative. There are pockets of rural growth: In 3 OECD countries, rural GDP grew faster than in metro areas between 2001-2021 (Austria, Germany and Switzerland). Rural regions near cities can benefit from urban spillovers, supporting high-value sectors like digital services, advanced manufacturing, and innovation hubs. This is what is propelling rural places in Germany and Austria. Remote rural regions can build competitive advantages in raw materials, primary activities (e.g. sustainable agriculture, forestry etc.), renewable energy, and nature-based tourism, for example. Rural regions can leverage opportunities such as in renewable energy, digital innovation, advanced manufacturing, and other sectors, with the potential to actually lead in the digital transition and environmental advances.
Rural places are showing economic resilience, which suggests that capital and technology are boosting productivity. Shrinking populations do not have to mean decline in prosperity. Rural economies are closing gaps in GDP per capita (converging to national averages in 16 countries), mainly by using technology to overcome persistent skills gaps and gain efficiency. Such resilient performance is widespread and not only limited to a few rural places: in 13 countries, over half of rural regions outperformed national GDP per capita growth between 2001-2021, with rural areas near cities showing the strongest results (Figure 2.2). Technological adoption helps maintain rural productivity amidst demographic decline via labour-capital substitution. The OECD Regional Outlook 2023 highlighted that although productivity and job growth have typically gone hand-in-hand, in non-metropolitan regions a combination of automation and competitive pressures from lower-income economies, resulted in a lower share of regions generating jobs growth as productivity has grown (OECD, 2023[2]). Sectors such as manufacturing and agriculture have embraced precision technologies and digital supply chains, allowing firms to maintain or increase output with fewer workers.
Source: OECD Reinforcing Rural Resilience (OECD, 2025[1]).
Rural prosperity goes beyond GDP. The quest for new sources of rural growth, a key driver of both local and national competitiveness, should be accompanied by better social and environmental outcomes to sustain shared prosperity. With more restricted access to services, rural regions face persistent gaps in social outcomes. The (OECD, 2025[1]) breaks down the data for metropolitan areas, rural areas close to cities (large, midsize and small FUAs) and remote rural regions. Life expectancy is 2.4 years lower in remote rural relative to metropolitan regions. Regions far from midsize or large FUAs have 12% fewer doctors per inhabitant. Rural areas close to cities are not spared from less access and higher costs: only 35% of towns within 30 minutes of a city have a hospital compared with 78% of metro areas and 47% of other remote areas. This illustrates how rural regions close to cities often experience the hollowing out of local services since they are often regarded in policy planning as less disadvantaged (called the “proximity paradox”). Though access to education is relatively better perceived in the rural perception survey relative to access to health care, tertiary education attainment is higher in cities in 25 of 26 OECD countries. Providing education services costs around 7% more in non-metro regions, rising to about 15% in remote rural areas.
Rural innovation is a cornerstone of rural transformation, enabling regions to identify and develop their unique competitive advantages. The (OECD, 2025[1]) calls for place-based policies to capitalise on diverse rural regions’ distinctive assets. This requires innovation from both private and public local actors to find new market niches. Also, with falling populations and by extension smaller workforces, innovation that enables more capital-intensive activities and more efficient processes will be critical to maintaining the long-term viability of rural places. The smart specialisation approach that emerged from the European Union is an example that relies on a process of “entrepreneurial discovery”, where public and private stakeholders collaboratively identify priority sectors based on local strengths and innovation potential (Foray, David and Hall, 2009[3]). In rural areas, this process means harnessing locally embedded knowledge, encouraging experimentation, and supporting the scaling of grassroots initiatives. Innovation provides the mechanism through which rural communities can transform existing capabilities, such as agricultural expertise, natural resource management, or cultural assets, into high-value economic activities.
Depending on geography, remoteness and natural resources, rural regions can pursue the most relevant opportunities. Rural regions near cities are well-positioned to integrate into innovation and advanced manufacturing networks, while more remote regions can capitalise on resource-based sectors such as renewable energy, sustainable tourism, and bio-based industries and in niche markets. In Finland, where most rural regions are remote, growth appears to be tied to niche high-tech industries (e.g. forest-based bioeconomy, digital health, and electronics) operating in small towns and benefiting from research linkages and strong public services. Rural remote areas can also unlock tourism opportunities, drawing on unique landscapes, heritage, and community experiences. OECD countries often tailor their policy approaches to support both. For instance, Finland’s policy approach has long supported innovation and connectivity even in remote places, helping them overcome the typical disadvantages of distance (OECD, 2017[4]). These examples show that while proximity to urban centres remains a powerful driver, remote rural growth is possible when supported by strategic investments and targeted sectoral strengths.
Finding new sources of growth requires strengthening all the factors that promote innovation. Innovation requires strong local institutions, investment in human capital, and access to knowledge networks that connect rural actors to research institutions and urban markets. Evidence from EU smart specialisation strategies shows that innovation ecosystems (comprising SMEs, public agencies, universities, and civil society) are essential to support this transition, even in low-density regions (McCann and Ortega-Argilés, 2016[5]). Therefore, fostering innovation is not only a developmental goal in itself, but a necessary condition for rural regions to chart their own transformation paths through smart specialisation. Proactive policies are needed to pursue areas of opportunity, leveraging unique assets of rural places like natural and cultural resources, and integrating specific, tailored policies (OECD, 2025[1]). Innovation plays a central role in capitalising on opportunities and adapting to new challenges.
Rural innovation can contribute to rural quality of life in multiple ways. It is not merely a scaled-down version of urban innovation but qualitatively different. With patenting rates at approximately one-sixth of those in metropolitan regions, rural innovation across the OECD is driven less by formal R&D and more by adaptive capacity, the creative use of technology and the reorganisation of existing resources. Innovation is not confined to laboratories or technology centres but embedded in local problem-solving and civic cooperation. Rural producers and institutions innovate through incremental process improvements and also often to address challenges in public service delivery with community-based solutions. Innovation that enables more capital-intensive activities and efficient processes is the key to remaining competitive.
Broader types of social and community-based innovation directly contribute to maintaining well-being standards. Social innovation and place-based service models are helping rural areas overcome structural disadvantages with local solutions. Reliable access to core services (education, health care, housing, mobility and connectivity) and meaningful community participation shape quality of life and the attractiveness of rural areas for residents and investors. For example, Highlands and Islands Enterprise (in Scotland, United Kingdom) supports community-based solutions and social enterprises delivering childcare and health services to fill critical gaps in public service provision. The solutions will differ depending on the type of rural region. Rural places close to cities can use digital tools to complement existing physical networks. There are examples of hub-and-spoke regional centres within roughly 30 minutes’ drive, rural-urban partnerships that pool demand, or co-located multiservice centres. More remote areas may need to rely more on mobile and digital-first services, including for telemedicine and distance learning. Examples include networked schools in Finland and Quebec, integrated and primary-care networks, hub-and-spoke emergency care, demand-responsive transport pilots in Norway and Germany, village supporters or nurse navigators, and broadband public-private partnerships (OECD, 2025[1])..
Rural economy perspective on technology impacts
Technology adoption helps reinforce the foundations for business creation, innovation and rural attractiveness. Emerging technologies such as 3D printing, artificial intelligence (AI) and augmented and virtual reality can offset the disadvantages of rural distance by enabling local production, fostering collaboration, and new forms of service delivery. Moreover, innovations in transport and logistics, such as autonomous vehicles and drone-based deliveries can lower trade costs and help rural communities overcome geographic and infrastructure constraints. In addition to productivity and expanded market access, innovation in access to remote education and telemedicine, among other technology-fuelled innovations, makes rural places more attractive for businesses and residents. AI has the potential to enhance public service efficiency and reduce transaction costs in financial markets (OECD, 2019[6]; OECD, 2021[7]). It can facilitate business expansion opportunities through assessment of alternative data sources to assess creditworthiness (OECD, 2020[8]) or trends in sectors that are critical for rural areas such as in tourism (OECD, Forthcoming[9]).
All rural regions can benefit from technology and digitalisation. With diverse sectoral applications, from the use of “smart agriculture” to addresses labour shortages in ageing rural areas to advances in technology in mining (OECD, 2021[10]) to improve extraction processes, work conditions, and productivity, widespread use of technology is improving rural economies. Automation offers productivity opportunities, particularly in capital-intensive sectors like agriculture and manufacturing. The potential is significant in manufacturing in particular. The adoption of automation, digital platforms, and advanced manufacturing can help rural manufacturers remain competitive despite smaller labour pools. Rural regions can adopt cutting-edge technologies such as robotics, AI, and 3D printing to specialise in high-value and customised production.
Key sectors for rural places can innovate with technology to maintain a competitive edge. The trends earlier in this section show resilient growth in GDP per capita in rural regions despite overall population decline. This is reflected in key rural sectors. For instance, labour productivity in rural manufacturing has increased, but often through contraction rather than expansion. Over the past two decades, rural regions across OECD countries have generally seen rising labour productivity in manufacturing, despite experiencing a net decline in employment. Between 2000 and 2019, around 92% of rural regions recorded productivity gains. Technology is one potential driver. Though manufacturing shows lower technological intensity in rural areas, it is increasing. The share of manufacturing employees in high technology is twice as high in large metropolitan regions compared to non-metropolitan ones. Yet, from 2008 to 2019, the average share of rural manufacturing employment in high and medium-high technology industries increased from 5.7% to 6.4%. Overall, manufacturing is becoming less labour intensive in both rural and urban settings. But in rural regions this trend adds to a broader process of jobless growth that is also fueled by agriculture, whereas in metro regions agglomeration economies have sustained both employment and productivity growth via other sectors (OECD, 2023[11]). This dynamic reflects a broader trend of "productivity through shrinkage" in rural economies where output remains stable or increases moderately, but labour inputs fall, particularly as younger and more skilled workers leave for cities (Rodríguez-Pose, 2018[12]).
Looking ahead, rural productivity will depend on further uptake of smart technologies, targeted investment in digital skills, and integration into innovation networks (OECD, 2022[13]). Without these, the risk of divergence and decline remains significant, particularly in remote and low-density areas. The reality is that technology adoption is still lagging behind urban areas. Sustaining and enhancing productivity in rural regions will require more than technological catch-up. It demands coordinated industrial and place-based policies that improve digital and physical infrastructure, enable skill development aligned with green and digital transitions, and support innovation ecosystems adapted to rural contexts (OECD, 2025[1]).
Automation and artificial intelligence
Automation can become an important development force if some barriers for their proper use (e.g. high logistical costs or access to skills by small businesses) are overcome. For example, Canada’s adoption of precision agriculture in the Prairies has boosted productivity, supporting rural competitiveness in global markets (OECD, 2024[14]). Finland, for instance, has integrated automation in its forestry sector, improving productivity and workforce efficiency.1 For rural areas near cities, automation can facilitate high-value manufacturing activities and integration into larger supply chains. Italy’s Veneto region illustrates this through its development of advanced manufacturing clusters that benefit from access to urban labour markets and export channels (OECD, 2023[11]).
AI has the potential to impact not just one sector but economies more generally. At the top of the agenda of OECD, G-20, and UN governments, are the transformative capacities of one of the most recent general purpose technologies (GPTs), Artificial Intelligence (AI) (OECD, 2024[15]). Like other GPTs, such as the steam engine, electricity and the Internet, AI has the potential to impact not just one sector but transform the way in which our societies operate, businesses function, and individuals live and work. While AI has existed for quite some time, the rapid commercialisation occurring over the past few years has accelerated its usage outside of fintech and manufacturing firms. However a more generalised usage of it may still require additional experimentation and scale-up, and with industry leaders quickly advancing in AI, governments are increasingly seeing AI compute2 capacity as a crucial resource to be managed (OECD, 2024[16]; OECD, 2023[17]).
Technological opportunities across services, market access and production
Advancements in technology, particularly through digitalization and AI, have the potential to revolutionize how rural areas address challenges related to accessibility, service delivery, and economic development. This section describes examples and assesses the likelihood of deployment and timeline of diverse technologies in rural context. Policy implications for specific types of innovations are also discussed.
Mobility
Improving mobility is a central concern to ensure well-being in rural places. Compared to urban areas, rural areas experience longer commuting distances between work and home and limited public transit options. Often, this is referred to the “distance penalty”, a significant factor that affects service delivery and sustainable development. This penalty manifests in increased pollutant emissions and difficulties in implementing sustainable mobility solutions. Addressing rural mobility is therefore not just about connecting communities; it's also a strategic approach to reducing overall transport sector emissions, while ensuring equitable access to markets and services (OECD, 2023[18]). In highly dispersed settlements mobility is essential to ensure that the exchange of ideas can occur within and across the different population settlement. In rural areas closer to cities, a better mobility would help communities and business to reach a larger pool of workers, markets and amenities.
Mobility technologies are progressing fast, alleviating distance barriers and contributing to sustainability. The current technologies to improve people’s mobility in rural regions span from autonomous vehicles by land or flight to shared autonomous mobility. In addition to autonomous vehicles, other solutions that can change mobility patterns in rural regions include shared autonomous mobility, carpooling platforms and private mass transportation systems, mobility as a service and flying vehicle. From these technologies, the development of autonomous vehicles and shared autonomous mobility has progressed fast in recent years and led to major benefits for rural dwellers. For example, using autonomous vehicles in rural public transit can reduce cost of moving people and improve the efficiency of transport, with benefits for people’s psychological and physical well‑being (see Box 2.1).The higher passenger capacity of shared autonomous transport is key to enabling a more efficient and sustainable transportation model that addresses mobility pain points[e] in rural areas and cities alike. Some key benefits of autonomous shuttles and buses include greening public transportation, saving costs through optimal resource use (e.g. on-demand services), and increasing connectivity (e.g. intra-city and first/last mile commutes).
Fully automated cars will probably not become available in all places at the same time. Most likely, areas with advantageous climate conditions (e.g. no snow and little rain), orderly traffic, a favourable regulatory environment and energy infrastructure will see an earlier introduction than other places (OECD, 2019[19]).Therefore, policymakers would have time to learn from experiences of first adopters. Some policies can accelerate the implementation and adoption of these technologies, including well‑maintained infrastructure (roads and public lighting), smart traffic lights benefiting from internet of things to help regulate crossing.
Fully self-driving vehicles are still some years away from being deployed. The Society of Automotive Engineering (SAE) has defined six levels of autonomy, ranging from Level zero (no assistance) to level 5 (full self-driving in all conditions) (Society of Automotive Engineers, 2014[20]). Most developers of autonomous vehicles today operate at level 1 or 2, and it is widely accepted that reaching level 5 is still far away. Safe driving requires not just operating a vehicle’s controls but also understanding complex social interactions and predicting human behaviour (OECD, 2019[19]).
Most new self-driving cars now feature level 1 tech, such as lane-keep assist and adaptive cruise control. Advanced systems like Tesla’s Autopilot and GM’s Super Cruise are level 2, meaning they allow the car to manage speed and steering but require the driver to pay constant attention in case they suddenly need to seize control. Other manufacturers, such as Ford and Google’s Waymo, are skipping level 3 to focus on level 4 (full driverless autonomy within a geo-fenced perimeter). Waymo already operates in some of its testing markets (predominantly located in rural areas) at level 4 autonomy, with no one sitting behind the steering wheel and sharing roadways with other drivers and pedestrians. However, these tests are a long way from being commercialised.
Japan offers a key case study in the potential of autonomous driving for local and rural mobility. Active early regarding this technology, the government has set targets to expand the use of autonomous driving vehicles in approximately 50 locations nationwide around FY2025, and at least 100 locations by FY2027. With this goal in mind, several projects aim to roll out advanced mobility services, including level four autonomous driving, through demonstrations and adoption of the technology to promote acceptance and understanding, and help revitalize aging, local and rural communities.
Shared autonomous shuttles, buses, and robo-taxis are fast gaining traction. Increasing trials will help ensure they are effective in overcoming transportation challenges. For example, NAVYA’s French company has deployed a number of self-driving shuttles on public roads outside of Paris, which were built from a greenfield site. To explore opportunities for shared autonomous vehicles in rural contexts, RISE, a Swedish research institute, initiated the “Autonomous Countryside” project in 2020, with the goal of helping Swedish municipalities to understand if shared autonomous vehicles can replace regular buses at some of their public transit routes with low ridership.
Access to public services
Access to basic services is a fundamental pillar of rural well-being. Long travel distance to reach service facilities, difficulty to recruit and retain professionals and limited curriculum options or health care specialist make education and health provision more difficult in rural areas (OECD, 2021[21]). Some new organisation models would be needed to address this issue, including school clusters or reinforcing primary and integrated care. Alongside this new policy approach, rural communities can take advantage of new equipment with innovative and smart solutions that increase access to services.
Technologies allowing remote access to education and health can improve rural well-being, regardless of how settlement patterns unfold. Some innovations can offer opportunities for women, youth and the most vulnerable as well as improve attractiveness of local communities (see Box 2.2). In education, for instance, beyond public service delivery, private sector provides multiple remote learning solutions including interactive television teaching tablets, modular coursework and self-directed learning, which can enrich curriculum opportunities in remote areas.
The COVID-19 crisis led many education systems to invest in digital platforms to offer more personalised learning opportunities. Türkiye’s Education Information Network (EBA), launched in 2012, played a central role in ensuring continuity during institutional closures in 2020, by using artificial intelligence to personalise digital content (Turkey’s Education Information Network, 2020[22]). Likewise, Korea has also developed an integrated online learning platform that uses big data and artificial intelligence to support students’ self-directed learning and bring together digital learning resources for students and teachers with information management systems for schools (UNESCO, 2023[23]). Online learning experiences reveal that key characteristics to make e-learning work include the quality of the educational content on the platform, the quality and availability of professional development and clear guidelines for using it and regulations.
In education, technology is rapidly changing the ways and methods to deliver and access education. Some technologies include:
E-learning is a method of virtual education ranging from simple virtual interaction to virtual or augmented reality to connect students and professors or provide trainings. Digital connection can empower disadvantaged groups. They can also benefit from economies of scale by reaching a greater number of students with one single course. For example, schools in rural Finland provide elective classes through teleconferencing technologies, where lessons in one school are streamed to classrooms in other schools (OECD, 2019[19]).
The integration of Artificial Intelligence (AI) into the educational sector offers unprecedented opportunities. AI-based educational tools include more didactic and personalised learning experiences (e.g., multimedia content, game-based learning), understanding and performance measurement systems, immediate feedback to pupils, or support mechanisms for both teachers and parents (Bournisien de Valmont, 2024[24]).
Simulations and gaming platforms are also being used to provide education at different levels and workforce training. Simulators to manage machines or drive vehicles are increasingly adopted as a training method in industries including manufacturing, mining and aerospace (OECD, 2020[25]).
In health, adoption of e-health has increased rapidly, especially in primary health. OECD (2020[26]) has identified some of these technologies:
Telemedicine includes tele-monitoring and interactive telemedicine, which may contribute in several ways to providing care in the right place at the right time. Teleconsultations are one of the most used telemedicine interventions in primary health care, notably to improve access to care for people living in underserved areas.
Home monitoring and self-management applications have proven that mobile health applications, otherwise known as mHealth, are efficient in preventing serious diseases. For example, digital applications in the areas of diabetes, depression, and anxiety have been found to improve the management of chronic diseases and reduce acute care utilisation (United States). Such policy options already exist in Canada (miHealth), Denmark (telerehabilitation service), Finland (Oulu Self Care Service) or the United States (HealthConnect). In addition, AI systems are enhancing autonomy and safety for old-age people in their own homes. Devices, sensors, and wearables can for example increase the detection rates of health risks or alert third parties in case of a fall or an emergency (Bournisien de Valmont, 2024[24]).
Clinical algorithms bringing external and patient-derived data into the clinical decision-making process can facilitate diagnosis, create personalised predictions of disease status and generate more appropriate treatment, thereby increasing the efficiency of health service delivery. The data used could include social, environmental and behavioural patient information, as well as financial, clinical, and administrative records, as in the United States with Kaiser Permanente and HealthConnect, or the risk stratification model used in Spain.
Other technologies like remote-managed or automated robots could help conduct surgeries by specialist regardless their location. This, however, requires high-qualified personal on-site, trust from patients and deployment of affordable ICT infrastructure for rural hospitals.
Access new markets
New transport modes and technologies can help firms and people in rural regions access markets and sources. Financing the cost, both in time and money, to move rural products to external markets faster than ever can help address a key drawback in the competitiveness of rural economies (OECD, 2020[25]). This higher cost to accessing markets also makes rural communities vulnerable to external shocks (e.g. in terms of international disruptions of value chains). While improving transport infrastructure (e.g. roads, trains, airports) has been the traditional strategy to increase competitiveness and ease commercialisation of rural products, for many remote rural regions (e.g. mountainous areas), these investments, although necessary, are still not enough and involve high maintenance costs. Some emerging technologies, such as drones and fintech, have the potential to impact access to market and capital.
Automated drone-based deliveries are still in their infancy, but could transform postal services, especially in sparsely populated areas. Drones are aircrafts that can fly autonomously or with user direction through software-controlled flight plans in their embedded systems, working in conjunction with on-board sensors, transmitters, imaging equipment and GPS (OECD, 2020[25]). Drones can reduce the time and cost of transporting goods, as air transport can be faster and encounter less obstacles than by land or water. Amazon Prime Air, DHL and Google have already conducted tests of deliveries with drones, and in 2015, the US Federal Aviation Administration approved the first commercial drone delivery (OECD, 2019[19]). Some authors have pointed out the potential of drones to replace some deliveries made by ships and cargo trucks (OECD, 2021[27]). They are likely to first be deployed in rural areas since it is far more difficult for drones to navigate buildings and infrastructure in more densely populated cities (Xu, 2017[28]).
New models and technologies are also set to further facilitate access to finance for rural areas. New financial models use innovative open-source solutions, Artificial Intelligence, and big data to provide rural communities insurance or microfinance solutions. This can ensure better financial stability. These types of technologies allow companies to personalise insurance and financial products according to unique risk profiles and reach more rural families with affordable, accessible solutions. Many new online banks also allow customers to open bank accounts and access credit virtually and without commuting to physical offices. Moreover, financial platforms help gather data on specific businesses and adapt credits and insurance in real time. For example, financial platforms like Agrabah gather a broad set of business data from registered farmers and fisherman to track detailed crop availability and delivery data every time they deliver their crop so as to assist financial institutions in better assessing risk for loans (UNICEF, 2021[29]).
Technologies for rural production
Several emerging technologies are promising to transform production in sectors relevant for rural areas, bringing new economic opportunities. Additive manufacturing, nanotechnology, biotechnology and synthetic foods can all transform production methods and open up new opportunities in rural regions. Table 2.4. provides an assessment of the likely adoption of a selection of technologies. Additive manufacturing, for instance, has the potential to make small-volume production much cheaper relative to mass production via 3D printing. This could eventually allow small businesses and even consumers to design and assemble final products. 3D printers are already capable of producing products from a variety of materials and 3D-printed goods are sold in various sectors including aerospace, jewellery and medical devices (OECD, 2019[19]). By modifying the properties and composition of materials, nanotechnologies have potential applications in textiles manufacturing, food processing, water purification, agricultural resilience and productivity, and biodiversity conservation. Biotechnology can use living systems and organisms to develop alternative sources of energy (biofuel) or produce stronger crops.
Technology can also make production processes more sustainable. For instance, genetic sequencing can bring more flexibility to location choices to produce synthetic food. This can shift the use given to land and natural resources and lead towards more sustainable use of resources. It would create an opportunity for rural regions to diversify their production of food and unlock new business opportunities that are more sustainable (OECD, 2019[19]).
These developments reinforce rural resilience. First, they reduce the dependence of businesses on established supply chains, which are often clustered geographically. Businesses located far away from them face more challenging logistics. 3D printing reduces the logistical complexity of production, which could allow businesses in remote regions to be less reliant on external suppliers and keep production ongoing regardless the disruptions to supply chains. Second, they reduce the costs of prototyping and small-scale production. This could increase innovation and firm creation, which would be particularly advantageous for start-ups and SMEs.
Enabling the use of technology
Technology adoption is often unevenly distributed. Technology adoption varies by firm size and region; in manufacturing, it is mainly large rural manufacturers that have an innovation edge (OECD, 2023[11]). In general, rural regions face barriers to the full adoption of these technologies. For example, there is a relative lack of professionals qualified to operate and maintain technologies like drones in rural areas combined to urban ones.3 Since these professionals are in high demand across most national economies, rural areas might struggle in the future to attract and retain experienced workers.
The main drivers of technology adoption still hinge largely on the basics. First, there is the need to continue to improve the availability and quality of broadband speed as a critical precursor to the diffusion of technologies. Second, it is imperative to invest in improving digital skills in rural places, especially for adults and the elderly population and across different professions including teachers and health care staff. Third, rural areas need to engage continuously with residents in the design and deployment of some of these technologies to ensure there is a good understanding of new business models and new opportunities for existing business. Getting the basics right is a fundamental precondition for technological innovation. The next section analyses country data on the main barriers to innovation.
But policies need more proactive efforts to promote adoption. Preparing regions to fully benefit from technology-driven service delivery innovation, for instance, requires policies to support the supply side and others to facilitate the uptake in the demand side. On the supply side, there is a need to upskill professionals in both using the new technologies and adapting to new service delivery methods as well as adjust regulations (health and education) to allow a wider virtual delivery of services. Investing or incentivising advanced-technology equipment and quality broadband for educational and health infrastructures can help accelerate this. Many of the challenges related to the introduction of new technologies into online public services are not related to the technologies themselves, but to organisational processes. For example, to use it to provide lessons remotely in multiple schools, it is necessary to synchronise each school’s timetable. On the demand side, policies should strengthen information campaigns on the benefits and potential of new ways to access services as well as capacity building and training to use these new technologies (OECD, 2020[25]).
Adoption of sophisticated technologies like AI need to coordinate a mix of policies beyond the basics. Facilitating the framework conditions (digital infrastructure, electricity and digital skills) remains an important priority in the diffusion of AI technologies. But there are further challenges. These include resource capacity, AI compute power and the higher demand for electricity generation needed for AI tools (OECD, 2024[16]). In addition, national level regulations on privacy and security related to personal or sensitive data could limit its use and diffusion to address rural challenges.
Technology and AI adoption need proactive planning, notably if they help overcome labour shortages locally. The labour-augmenting dimension of some AI tools can solve some of the important challenges that regional and rural governments face. Regional employment and labour councils need to consider the inclusion of the potential impact on the regional labour force and skills demand when preparing a) training and continuous education services, b) strategies for displaced workers, and c) initiatives to activate the labour force. In addition, ensuring that regional and rural governments are consulted and participate in the elaboration of AI policies is an important step to ensure that regional and rural concerns are not overlooked in national strategies (OECD, Forthcoming[30]).
This section summarises both challenges and opportunities for rural innovation identified by the OECD survey on Enhancing Rural Innovation (Box 2.3). Notwithstanding official definitions of innovation (e.g. the Oslo Manual (OECD/Eurostat, 2018[31])) the findings underline the importance of a nuanced view of innovation that does not focus only on standard notions linked to science and technology. Equal weight is given to the adoption and adaptation of technologies in the innovation process.
As part of the OECD project Enhancing Rural Innovation, a policy questionnaire was conducted to gather information on how countries design and implement policies to foster innovation in rural regions. The questionnaire explored the institutional settings, policy instruments, and enabling conditions that support innovation beyond metropolitan areas.
A total of 28 OECD countries responded to the questionnaire, providing detailed information on 230 individual policy initiatives. These were classified under six main policy areas:
Labour and skills and public services, which in the survey include both physical and digital infrastructure, each accounting for about 30% of all reported initiatives,
Interlinkages between actors (15%),
Finance mechanisms (11%),
Entrepreneurship (10%), and
Other supporting actions (3%).
Responses are subjective and provided from the perspective of regional development agencies or ministries in charge of rural development. Respondents were asked to rank top challenges out of 10 total. Countries such as Germany and Ireland provided qualitative responses outside the standard grid, illustrating the diversity of national approaches and institutional contexts. The results provide a unique cross-country overview of how OECD members are working to enhance rural innovation through targeted and place-based policy frameworks.
Barriers to rural innovation
Access to services, skills and broadband are bottlenecks for rural innovation. The top ten challenges reported by rural and regional government officials in the survey were those related to access to public services (including physical and digital infrastructure) (33%) and labour and skills (30%) (Figure 2.4). Rural areas often face unequal access to services for innovation and entrepreneurship support, making general support for business creation and access to enabling services like training a fundamental element of innovation systems in rural regions (OECD, 2021[21]; OECD, 2023[32]). Digital infrastructure and broadband are also a challenge. Despite advancements in broadband coverage, there are still important gaps in connectivity and download speeds between rural and urban regions in OECD countries. On average one-third of rural households do not have access to high-speed broadband and only 7 out of 26 OECD countries have secured access to a high-speed connection for at least 80% of rural households. In addition, rural remote regions have the lowest median download speeds (OECD, 2020[33]). Although the digital gap between cities and rural areas is decreasing by 11 percentage points over the last 5 years, the gap in broadband download speeds remains larger than 30 full percentage points: it is 13% faster than the national average across cities, while in rural areas, it is 22% slower (Figure 2.3).
Q1 2019 to Q4 2023, small regions (TL3) classification by type of regions, small regions (TL3), 2022
Source: OECD (2024), OECD Regions and Cities at a Glance 2024, , https://doi.org/10.1787/f42db3bf-en.
The lacking or limited access to public services is a pervasive challenge for rural regions. In addition to digital services, a critical component of many tech based innovations, access to education and technical training resources (OECD, 2023[32]; OECD, 2021[21]), access to health services (OECD, 2021[21]) and amenities at large, remain less accessible, and only assured through community or social innovation initiatives (OECD, 2023[34]).
Skills shortages are often acute and persistent. Labour and skills shortages may occur in rural regions for a variety of reasons, including demographic change and the specific economic profile of rural regions. For example, the elderly dependency rates in the non‑metropolitan areas of Denmark, France, Japan and Korea stand above 40% (reaching 62% in Japan) (OECD, 2020[33]). Labour and skills shortages may also be related to a lack of specific skills or training given local labour needs (OECD, 2023[32]), which relates back to the challenge of insufficient access to services. This underlines the importance of skills and employment training in rural regions but also investments in public services and amenities that make living in rural regions attractive (OECD, 2022[35]).
The challenges also relate to small ecosystems for entrepreneurship and talent. Other top challenges were insufficient interlinkages (15%), access to finance (11%), and general entrepreneurship and business support (10%). Figure 2.4 shows the relative importance of these thematic areas by country. Among these challenges, countries listed access to supply markets/chains, concerns about outmigration, need for business and management skills and training and access to financial services and banking as top-rated concerns.
Rural places have a variety of opportunities to promote innovation. Despite the challenges, respondents had a variety of opportunities that they considered strong in rural regions within their country. Over a quarter (26%) responded that linkages with other places build opportunities, while entrepreneurship and business support and access to public services were critical components of bringing opportunities to rural regions. It is also notable that no country identified the same opportunity as the greatest, suggesting a diversity of conditions and opportunities experienced by rural regions. Top ranked opportunities (#1) varied from community capacity building in Switzerland to access to higher education institutions in Spain, access to business collectives and cooperatives in Latvia and social innovation initiatives in communities in Israel (OECD, 2021[36]).
Subjective responses on ranking of top 10 obstacles for rural innovation
Note: Responses are subjective and provided from the perspective of regional development agencies or ministries in charge of rural development. Respondents were asked to rank top challenges out of 10 total. The graphs report the share of total respondents having identified at least one concern related to the 6 large thematic categories (public services, labour and skills, interlinkages, finance, entrepreneurship and business support, or other concerns).
How rural innovation systems are operating
Rural innovation can involve several national and local stakeholders, who may have sectoral or place-based focuses. Governments play a key role in setting the foundations and in supporting equal access to finance and other business supports. While most governments have some kind of national innovation strategy and associated policies and programmes, rural innovation can come from a diversity of institutions and across scales. Some countries adopt a sectoral perspective, with interventions focused on key rural economic sectors like agriculture or industry, while in others, rural innovation is led by regional development authorities that take a more encompassing view.
National governments tend to hold the lead mandate for supporting rural innovation. According to the survey (Figure 2.5), across the majority of countries central agencies take the lead on initiatives, policies or programmes targeted towards enhancing innovation in rural areas. Some countries have an innovation-focussed ministry such as Lithuania’s Agency for Science, Innovation and Technology while in others, rural innovation falls under the purview of a ministry of agriculture and/or rural and regional development.
Subnational governments and (bottom-up) community initiatives also play a role. Subnational or regional governments come second in the survey with examples such as the Czech Republic’s Regional Innovation Centres.4 In some countries, the mandate is jointly held. For example, Colombia’s rural innovation policy is two-tiered, with coordination and management at the national and local levels.5 At the more granular community level, bottom-up initiatives such as those initiated through community‑based associations are especially common in European countries; Local Action Groups (LAGs) are established at the initiative of local governments, entrepreneurs and civil associations in order to implement objectives related to the EU LEADER programme.6 Rural development hubs also fall into this category as intermediary institutions that sit between national policy and local action that can serve critical functions to support regional innovation systems (The Aspen Institute, 2019[37]). Finally, in some countries, one-stop shops play an important role, helping people/organisations/firms access a range of services (e.g., Latvia). Other approaches include to innovation include Spain’s national and regional level public research institutes and initiatives like Japan’s Cross-Ministerial Strategic Innovation Promotion Program (Japan Science and Technology Agency (JST), 2021[38]).
Note: Questionnaire responses received from 28 OECD countries
While there are a range of institutional forms, a spatial approach to innovation agenda setting is lacking in most countries surveyed. In most cases (73%), innovation-specific policies, programmes and initiatives are reported to only have a national approach. Among these, three countries (Austria, Czech Republic, Lithuania) report national approaches to innovation but with other spatial policies, programmes and initiatives that can include innovation within its mandate. Only around a third of countries (27%) report having innovation-specific policies, programmes and initiatives that generally or always have a spatial approach.
Rural innovation may also fall within the purview of sector specific agencies, which carries risks. For instance, Sweden’s Board of Agriculture, Forest Agency, Food Agency and Transport Administration addresses sectoral aspects of rural innovation. However, rural innovation often occurs between sectors (e.g. tourism, agriculture, food) and as such, sectoral approaches risk losing out on these interactions (Kubeczko, Rametsteiner and Weiss, 2006[39]).
Aspatial approaches may fail to address the unique features and needs of rural firms and innovation systems. For instance, national approaches to innovation have a tendency to focus on firms large enough to have a formal R&D function and science and technology investments, which are typically found in larger cities with universities (Huggins and Clifton, 2011[40]; Mahroum et al., 2007[41]; Phillipson et al., 2019[42]). These science-based activities can also occur in rural areas. For example, forest-based bio-energy research. However, innovation in rural areas can also take different forms as noted in studies of unconventional or hidden forms of innovation (Goetz and Han, 2020[43]), which means that they can go unnoticed and underappreciated. In other words, urban bias in statistical measurements of innovation risks carrying over to policy development (Shearmur, 2017[44]).
The trend is towards place-based approaches. Effective rural innovation policies require an understanding of local challenges, opportunities and conditions. Rural entrepreneurs and community actors are ultimately best placed to know their comparative advantages, raising the importance of the governance systems that are engaged to deliver rural innovation polices alongside links to regional innovation and community development. This requires the capability for local stakeholders to make the business case for central support, with a good understanding of the complementarity of rural industries/firms, potential for knowledge spillovers and local/regional comparative advantages. As Goetz and Hans note, “if public goods case can be made to support conventional innovation efforts in labs, etc., then the same could possibly be extended to the other, hidden forms of innovation that may be occurring elsewhere in the nation but that are not presently documented” (Goetz and Han, 2020, p. 7[43]).
Policy priorities
Current innovation policies are not adequately addressing the needs of rural communities, so a rural lens is needed. This inadequacy is already clear from the OECD survey results, where access to public services, labour and skills are the top concern for rural innovation. Rural economies, who operate on a smaller scale and with less connections to national and international networks, face strong challenges that limit opportunities. However, these challenges are not typically prioritised or even covered by direct funding or programmatic support for innovation, which tends to target R&D and initiatives linked to science and technology. Therefore, the distribution of support for innovation is often clustered around urban areas (OECD, 2022[45]). Most countries do not quantify urban-rural cost differences emerging from remoteness and lack of scale, unfairly affecting the allocation of funding towards rural regions (OECD/EC-JRC, 2021[46]) and creating systematic underfunding appearing to negate the “right to be rural” (Foster et al., 2021[47]).
When a rural lens is adopted, innovation policy is much more than direct support to firms or access to capital. It involves communities and relations with territories in their proximity. Perhaps more so than in urban contexts. Rural innovation is no longer considered a discrete event led by inventors and research organizations, but rather, as “a process involving interactions and exchanges of knowledge from multiple sources to achieve social and economic goals” (King et al., 2019[48]). Innovation entails novel changes that add new economic or social value to rural life (Mahroum et al., 2007[41]).
Rural innovation is often more responsive to indirect policies that enhance the foundational enablers of the local ecosystem. It involves a combination of: (i) direct resources to support rural innovation, such as R&D grants or tax incentives, access to public research entities for high-tech innovation, or lenient regulation for experimentation in process and products in rural areas; (ii) indirect resources that support innovation, such as market access (internal and international), access to finance, and access to skills; and (iii) ancillary support that provides general support to rural businesses, such as stable markets, regulatory requirements, monetary and tax policy and other broader market assurances.7
The diverse types of support can coexist and work in tandem, though this is not always achieved in practice. In many cases, a “systems” approach ties several benefits to a place including direct, indirect and ancillary support. However, in many other cases, national policies and programmes on innovation and entrepreneurship may unintentionally overlook regional diversities when it comes to direct innovation and entrepreneurial support programmes. Two main reasons can explain this phenomenon:
Firstly, when typical direct innovation support and funding is available, often they are more easily disbursed in regions that have a larger share of financial, manufacturing and high-tech sectors, as well as strong research universities. R&D subsidies or tax breaks are often distributed near dense cities and universities (OECD, 2023[49]) where such sectors are clustered.
Secondly, measurement limitations of rural innovation can further restrict their support. Product and process innovation (not meriting heavy R&D investment or legal patents) are often devalued either because of the dominance of high-tech innovation as a policy goal or because of challenges in sample size and representativeness (OECD, 2022[45]). Insufficient coverage of broader indicators in innovation surveys (e.g. firm churning, individual entrepreneurs engaging in new business opportunities, new services) further balances policy in favour of those highly tracked like R&D.
Market failures also result in lower access of rural businesses to indirect support mechanisms. The survey confirms the insufficient (and unequal) access skills and public service provision, in particular for SMEs or start-ups. This affects innovation; without policy interventions and facilitations, rural entrepreneurs can remain risk-averse (Fackelmann, Verbeek and McDonagh, 2019[50])8 and businesses likely to underinvest in R&D in socially and environmentally desirable technologies such as renewable energy (Esmaieli and Ahmadian, 2018[51]). Access to finance is a particular limitation in rural areas.9
Very few countries directly address disparities between rural and urban areas, which affects innovation performance indirectly. For instance, there is a well-documented gap in digital infrastructure that limits access to digital resources and markets, averaging up to 52 percentage points in OECD and G-20 countries in the second quarter of 2020 (OECD, 2021[52]). Most governments continue to address such challenges primarily through investment and competition policy in the telecommunications sector (OECD, forthcoming[53]), while some also include targets for universal coverage, or local service provision initiatives.
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← 1. For more information on Improving digital planning management of forest resources in Lapland, Finland see (https://ruralpact.rural-vision.europa.eu/good-practice/improving-digital-planning-and-management-forest-resources-lapland-finland_en).
← 2. AI computing resources (‘AI compute’) include one or more stacks of hardware and software used to support specialised AI workloads and applications in an efficient manner (OECD, 2023[17]).
← 3. There are two major limitations for drone’s rapid commercial adoption: short battery life and the lack of proper regulation (and enforcement) (OECD, 2020[25]). Likewise, there are mostly national guidelines on the use of drones, which do not always take regional conditions into account. Sometimes, guidelines are also imprecise about the areas where certain kinds of drone use are permitted, leading drone users and developers to operate in legal grey zones (Levush, Kelly and Tariq, 2016[55])
← 4. Czech Republic Regional Innovation Centres are located in the Ústecký, Středočeský and Moravskoslezský regions. They entail partnerships between the national, regional and municipal governments alongside university/technical college partners. These Centres coordinate and implement Regional Innovation Strategies, provide individual business support services to start-ups and SMEs and in cases, administer and develop technology parks.
← 5. The Ministry of Agriculture and Rural Development (MADR) and its Rural Development Agency (ADR) are the main national lead while the local focuses on the agriculture departments of municipalities and special districts.
← 6. The EU has spearheaded a community-led approach to rural development. The EU LEADER programme, which was first adopted in the 1990s, has played a critical role in reorienting rural development beyond agricultural policies. The approach has been so successful in rural areas that it was subsequently expanded to three additional EU funds under community-led local development (CLLD) (these are the European Social Fund, the European Maritime, Fisheries and Aquaculture Fund and the European Regional Development Fund). In rural areas, local action groups (LAGs) have been established at the initiative of local governments, entrepreneurs and civil associations within a certain territory or community in order to implement objectives related to the EU LEADER programme. LAGs are a form of “special association” where, at the decision-making level, private partners and associations must make up at least 50% of the local partnership. LAGs decide the direction and the content of the rural development strategy and take decisions about the different projects that are financed under the LEADER programme.
← 7. In some cases, the ancillary support may become localised so that it addresses system-level environment, making exceptions or exclusions for an area bounded by administrative barriers. An example of this are regional innovation hubs or “start-up villages” that facilitate some of these regulatory and macro economy framework conditions for a limited administrative area – with special economic zones as another example focused on export markets.
← 8. For example, a study of agri-food innovation by the European Investment Bank (Fackelmann, Verbeek and McDonagh, 2019[50]). has identified particularly low rates of investment in core areas such as technology, products and processes.
← 9. A 2019 survey of farm enterprises in the EU reports that 12.2% of farms have challenges accessing access to finance for investment and 10.4% experience difficulties in accessing finance for working capital (European Commission/ European Investment Bank, 2019[54]). For smaller firms, there may be loan hesitancy due to perceived risk or a lack of collateral alongside more personal dynamics such as a lack of financial literacy.