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AbstractSignificant progress has been made in recent years in the development of enterprise policy in the Western Balkans. Issues remain, however, in the support provided for innovative enterprises. In this paper we use data from the 2005 Business Environment and Enterprise Performance Survey to identify the determinants of innovation in locally-owned firms in the Western Balkans and compare these to the other CEEE countries and the CIS. Based on an econometric examination of the innovation production function in each area we observe marked differences in the determinants of innovation. First, in the Western Balkan countries (WBCs) R&D and higher-level skills have little impact on firms' innovation outputs, a result which contrasts strongly with results for the CEEE, CIS and other more developed economies. Second, we find no evidence of innovation benefits from urban locations in innovation in the WBCs or that public support is having any positive effect on innovation outcomes. Again, this experience is at odds with evidence from other regions. Third, innovation outputs in the WBCs are being negatively influenced by aspects of the business environment. These results suggest a need for an active and rather interventionist innovation policy in the WBCs to address these system failures. A range of policy options are developed.

There is now general agreement that inter-firm cooperation through networks, partnerships and supply-chains can, by facilitating knowledge exchange and reducing transaction costs, contribute both to innovation and company competitiveness. Dense patterns of 'association', reinforced by links between firms and other support institutions, have also been linked to cluster and regional growth. Case-studies of areas with high levels of co-operation have been characterised by social and economic uniformity, geographical contiguity, high levels of social capital (i.e. trust) and stable and supportive governance and support institutions. Border regions are often characterised by exactly the opposite conditions: poor infrastructure, low population and business densities, low levels of social capital and governance which is at best divided, and at worst, antagonistic. In this context, cross-border cooperation can play an important role, countering the structural discontinuity of border regions and generating a potentially positive growth dynamic In terms of the Northern Ireland-Ireland border the general socio-economic difficulties of border areas have been exacerbated by violent social and political unrest. Although the security situation has been more stable in recent years, the economic and social legacy of the past persists. In this context, cross-border co-operation has been seen as one way in which past divisions can be healed and an integrated all-island economy developed. The aims of this paper are two-fold. First, to augment the relatively limited empirical literature on the economic determinants of the probability that firms will engage in cross-border cooperation. In particular, we adopt a transactions cost perspective and seek to identify those factors which are either specific to, or disproportionately important, in shaping the probability of cross-border interaction. The second objective is to contribute some positive evidence to the, all too often, opinion-driven debate on North-South cooperation on the island of Ireland. Specifically, we focus on identifying any differences in the determinants of cross-border co-operation in Ireland and Northern Ireland This provides some insight into current levels of co-operative activity as well as highlighting potential areas for policy intervention. The paper adopts a simultaneous probit approach to examining the determinants of cross-border and local cooperation between firms in Ireland and Northern Ireland. The conceptual approach draws on the transactions cost literature, arguing that firms will engage in cooperation where the costs involved are less than those of market interaction. Cross-border cooperation is modelled as an alternative – and possible complement or substitute – for local co-operative activity. The study is based on a large-scale interview survey conducted in 2002. The results identify a number of factors which help to predict the probability that a firm will engage in cross-border cooperation. Perhaps unsurprisingly it proves easier to predict cross-border cooperation by firms in Northern Ireland than in the larger and more buoyant, Ireland. The results also suggest some complementarity between local and cross-border co-operation, and a declining probability of cross-border cooperation the further a firm is located from the border. Somewhat surprisingly, however, no clear size or sectoral bias is found in the probability of engaging in cross-border cooperation.

Regional regeneration strategies based on developing innovation capability have received much support in recent years. Evaluation of the effectiveness of such initiatives has, however, been limited largely to an assessment of the impact of such strategies on policy frameworks and attitudes. Based on innovation survey data covering nearly a decade, this paper outlines a number of external innovation benchmarks for core and peripheral regions within the EU. The benchmarks considered cover the innovation objectives, constraints resources, linkages and outputs of manufacturing firms. Despite considerable efforts in recent years to develop the innovation capability and institutional support framework for innovation in Northern Ireland and the Republic of Ireland, the benchmarks still point to a substantial performance gap between the Irish and German study regions and provide little evidence of convergence over the 1991-99 period. The benchmarks also suggest other more general points emphasising, for example, a general shortening of product lifecycles and a related shift towards more radical innovation. More disappointing is in that in each of the study regions the development of environmentally friendly products is given a low and diminishing priority by manufacturing firms.