Two Regimes, One Threshold: Absorptive Capacity and the Structural Divergence of EU Innovation Systems

Abstract

Why do European Union member states that invest nearly as much in public research as the innovation leaders produce a fraction of their innovation output? This paper argues that the answer is structural rather than parametric. The EU innovation space is not a continuum of greater or lesser efficiency operating on a common production function - it contains two qualitatively distinct regimes separated by a threshold in private absorptive capacity, below which the standard conversion mechanisms between knowledge inputs and innovation outputs break down simultaneously. Where private capacity to absorb and commercialise knowledge falls short of this threshold, the symptoms compound rather than offset one another: public research generates knowledge that has nowhere to go; doctoral graduates emigrate to systems capable of deploying their skills; and internationally mobile researchers use peripheral academic environments as waypoints rather than destinations. The conventional policy reflex - to raise public research investment in the expectation that outputs will follow - therefore misdiagnoses the constraint, treating a structural discontinuity as a matter of degree. Drawing on a decade of European Innovation Scoreboard data, the paper identifies the private R&D threshold that separates these regimes and documents the sign reversal in the innovation returns to researcher mobility across them. The central policy implication follows directly: capacity building must precede - not merely accompany - investment in public knowledge production, since absent a private sector able to absorb it, additional public research deepens the very leakage it is intended to remedy.