Europe’s rural regions that bridge the innovation gap

Across Europe, cities remain centres of entrepreneurial dynamism and innovation. However, evidence from a recently published JRC policy brief suggests that rural regions can be engines of growth, hosting innovative businesses in diverse and knowledge-intensive sectors.

The sectors in which rural startups are active show, as expected, a comparative advantage in the agri-food area. Other sectors however, including transport, energy, or high-tech industries such as robotics and semiconductors, are also well represented. Significantly, rural regions account for over 11% of all EU robotics startups.

The emergence of startups - young, innovation-driven firms with strong growth potential - is a crucial element of entrepreneurial dynamism. The policy brief found that the urban-rural divide remains substantial, with 76% of all EU startups based in cities and 18% in towns and suburbs in 2024, compared to just 6% in rural areas.

However, some rural regions display remarkable performances. In regions such as Val-d'Oise (France), Alb-Donau-Kreis in Baden-Württemberg (Germany), and the province of Imperia (Italy), the share of rural startups is well above the national average when compared with the share of the rural population. This illustrates how rural regions can nurture innovative activity under the right local conditions.

These findings highlight how place-based policies can help harness the untapped entrepreneurial potential of rural regions, turning them into places of opportunity and drivers of European competitiveness.

Firm creation rate: some rural areas surpass urban regions

Entrepreneurial dynamism captures the vitality of business activity and structural transformation across regions and sectors. One key indicator is the share of new firms emerging in a region. In 2022, urban regions led in firm creation with an average rate of 10.1%, with peaks above 15% in urban hotspots in Spain and Malta, and the capital regions of Helsinki, Tallinn, Bucharest, Warsaw and Paris.

While rural regions recorded an average of 8.7%, several rural regions stood out as notable exceptions. The rural regions of Lääne-Eesti (Estonia) and Giurgiu (Romania) reached firm creation rates of 17% and 16.2% respectively.

The employer firm creation rate, defined as the number of newly created enterprises compared to the total number of active enterprises with at least one employee, measures the share of new firms created every year.

In 2022, 59 rural regions in Estonia, Romania, Hungary, Croatia, Poland and Finland reported firm creation rates well above the 9.4% EU average. In other countries, rural regions performed similarly to urban areas in the same country - for example in Hungary, Italy and Latvia.

High-growth enterprises: the success story of Jämtland

High-growth enterprises, defined as firms that record an annual employment growth above 10% over three consecutive years, provide another important lens to assess entrepreneurial dynamism. Urban regions lead overall, but several rural regions also stand out.

In terms of high-growth enterprises, Jämtland (Sweden) recorded the highest share among rural regions in Europe, reaching an impressive 21.2% in 2022, compared to an average high-growth enterprise presence of 8.2% in rural regions and 10.1% in urban regions. Jämtland's entrepreneurial vibrancy seems to stem from a combination of favourable local conditions, including one of Sweden's densest networks of coworking and learning hubs, dynamic clusters, a strong cooperative culture, active local development groups and initiatives supporting lifelong learning and skills development.

Enabling conditions

Overall, the findings underline how the right local conditions can favour a balanced entrepreneurial development across rural and urban regions. Place-based, integrated public initiatives based on granular territorial data can address territorial disparities and unlock the full growth potential of all EU territories, ensuring that no region - urban, intermediate or rural - is left behind. Enabling conditions for innovative ecosystems include:

• Investing in targeted skills development programmes aligned with local economic needs
• Improving access to finance
• Reducing administrative burdens and enhancing digital governance tools
• Upgrading digital infrastructure, as well as transport and facilities
• Promoting entrepreneurial education and culture
• Fostering innovation networks, peer learning and capacity building

Background

Entrepreneurship plays a central role in advancing the EU's economic resilience and territorial cohesion. Accounting for 99% of all EU businesses, Small and Medium Enterprises (SMEs) and startups are vital engines of innovation and job opportunities.

The EU has launched several strategic initiatives to harness the potential of entrepreneurship and innovation across all territories. These include the cohesion policy, the EU's main tool to promote balanced territorial development, and its European Regional Development Fund; and the SME Strategy for a sustainable and digital Europe; the Startup and scaleup strategy.

As part of the long-term vision for the EU's rural areas, the European Startup Village Forum, coordinated by the European Commission's Joint Research Centre, seeks to generate evidence on the patterns and drivers of innovation and entrepreneurship in rural Europe, and to connect policymakers, practitioners and local communities in order to shape actions supporting locally-driven innovative entrepreneurship.

Related

Entrepreneurship in the EU: key insights into business dynamics in rural regions

Revitalizing rural areas through innovation and entrepreneurship: public and private initiatives to train, attract and retain human capital

Entrepreneurial and innovation ecosystems in rural areas: Startup Village examples

Rural Observatory

Rural pact community platform

Innovation, knowledge exchange and EIP-AGRI | EU CAP Network

Horizon 2020 ; Horizon Europe Cluster 6 Destination Communities

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