THE INTERRELATION BETWEEN DIGITALIZATION AND THE INNOVATION POTENTIAL OF A REGION: SYSTEMATIZATION OF CAUSE-AND-EFFECT MECHANISMS

Abstract

The digital economy is demonstrating faster growth rates than traditional sectors, and its share in the gross value added of developed countries is steadily growing, which is transforming digital technologies from an auxiliary tool into an independent factor of economic dynamics. The article systematizes the cause-and-effect mechanisms of the interrelation between digitalization and the innovation potential of a region. It is substantiated that the widespread interpretation of this relationship as a linear and unambiguously positive dependence is simplified and does not reflect its multichannel and bidirectional nature. The structure of the innovation potential of a region is clarified, and it is shown that digitalization affects not this potential as a whole, but its individual components – personnel, material and technical, informational and knowledge-based, financial and investment, and institutional and network components. Four direct mechanisms of the impact of digitalization on the innovation potential of a region are identified and systematized: infrastructural, cognitive, competence-related, and transactional. Three reverse mechanisms of the impact of innovation potential on digitalization are also distinguished: technological, personnel, and demand-related. It is proved that the direct and reverse mechanisms close into a self-reinforcing cycle, which gives the interrelation the character of cumulative causation. The dependence of innovation potential on digital factors is formalized, and the dynamics of cumulative interaction are presented in a stylized form. The existence of a threshold effect is substantiated, according to which digitalization begins to be significantly converted into innovation potential only after overcoming a critical mass of digital preconditions. The regional moderating conditions that influence the strength of the mechanisms are determined: the absorptive capacity of the region, the quality of human capital, the institutional environment, and the density of economic activity. The specific features of the operation of these mechanisms in the regions of Ukraine under martial law and post-war recovery are revealed. Three typical trajectories of the interrelation are distinguished: an upward spiral, a stagnation trajectory, and a downward spiral. It is substantiated that realizing the positive potential of this interrelation requires a purposeful regional policy based on smart specialization, differentiated according to the level of digital preconditions achieved by the region. The results obtained are of theoretical importance for studying the structural modernization of regional economic systems and of practical value for substantiating regional innovation and digital policy.