Fostering regional innovation, entrepreneurship and growth through public procurement

RIS3 is a policy initiative aiming to achieve structural change. Structural change needs to consider the processes and means through which (innovation) policies can facilitate a radical transformation by substantially changing a regional economy's competitive bases. In this paper, we are interested in studying how certain policy instruments are actually implemented, and how the capabilities required for their effective rollout are built in practice. In particular, we focus on public procurement as a policy instrument that can foster regional innovation, entrepreneurship, and growth, while also transforming the industrial structure of a territory. The rationale for focusing on public procurement is threefold: (i) despite being identified as one of the relevant policy instruments to implement RIS3, little is yet known about how public procurement can be used for higher-order political purposes such as innovation-based diversification and transformation; (ii) public procurement remains an underexplored policy tool in sub-national innovation strategies; and (iii) public procurement links to the two key concerns of RIS3, namely, policy prioritization and the entrepreneurial discovery process. The paper provides evidence on two public procurement initiatives in Galicia (Spain), one in health and the other in unmanned aerial vehicles. We adopt a mixed-method approach, relying on a qualitative exploration of the factors leading to the institutionalization of public procurement in policy-making. Our results evidence that innovation-oriented public procurement has the potential to develop local priorities and strategies while also creating the necessary capabilities on both supply and demand. As a result, it can lead to the territorial transformation and to the emergence and further development of entrepreneurial firms. Plain English Summary Public procurement can foster innovation, entrepreneurship, and growth while transforming the industrial structure, but horizontal ellipsis how to roll it out for its effectively? The paper provides the following implications for the practice of innovation policy. For an effective implementation, governments need to adopt a mission orientation that addresses grand challenges and provides directionality to the policy. It is also necessary to mobilize financial resources from supranational, national, and regional funds, what requires coordination and multi-level governance. When governments lack previous experience in innovation policy, they can conduct trial-and-error experiments that facilitate policy learning and lead to the development of capabilities, both on the demand and supply side. This experimentation should follow open innovation approaches by incorporating end-users, to open up policy definition to societal actors. At the same time, this facilitates the development of early market conversations that help to better frame the policy, institutionalize the policy definition process, and gain internal legitimacy. Policies also should seek for creating positive spillovers and knowledge transfer between large and small firms.