We study the combined effect of formal (FSK) and informal (ISK) sources of knowledge on European regional innovation performance. Our findings show that the effect of the two sources of knowledge on innovation performance is not simple and linear. First, both sources of knowledge have an interaction effect on innovation performance (ie, the effect of FSK on regional innovation depends on the level of access to ISK in the region, and vice versa). Second, while the effect of ISK is linear (although different for each region), the effect of the FSK (which is more intensive in monetary, time, effort, and opportunity costs) has a diminishing-returns form, and achieves a saturation point at high levels of use of FSK. Our findings also show that the balanced access to both types of sources is important and that, for instance, regions with limited access to ISK should not expect miraculous effects from high levels of FSK. To the best of our knowledge, no previous research has been reported which has empirically studied the combined effect of both sources of knowledge at a European regional level.
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