Firm-Level Innovation in Spain: Patterns, Drivers and Policy Implications

While Spain’s productivity growth has picked up in recent years, a sizable gap with other high-income countries remains. One contributing factor is a large innovation gap vis-à-vis peer countries. Firm-level evidence shows that this gap is particularly pronounced among young firms and widens for higher-quality patents. Innovation is held back by size-dependent regulations, financial constraints, regulatory burdens, and the complexity of the R&D tax credit, which is generous on paper yet has low take-up rate. Quantitative simulations based on endogenous growth model suggest that easing these frictions could raise Spain’s long-term total factor productivity growth by over 0.25 percentage points.