Since the regional policy nowadays is an important subject in the European institutions, the involvement of regional and local authorities in the programming, management, evaluation and monitoring of operations is essential for the success of EU level policy. A Regional Problem is defined as a problem that arises in an area of a country where there is dependence on a narrow industrial base often faced with declining manufacturing activity, and lack of general infrastructures. Other challenges include low levels of GDP and a net migration out of a country or region. The EU is trying to overcome these challenges by using the Structural funds financing programs to help firms in these regions. This paper presents a comparative analysis of the innovation policy and the industrial policy at the national and regional levels in Ireland and Finland, over the 1990s. In both countries the period from 1991-99 was marked by expansion, as measured by steady output growth for manufacturing as a whole (albeit at substantially lower levels in Finland than in Ireland).

In general, the evidence presented in this paper suggests a positive relationship between innovation policy as reflected in financial support to firms for R&D and business level investment in R&D and innovation activity. R&D financial assistance to firms has been a significant feature of the industrial development policy in Ireland since the 1980s. At the same time, the proportion of manufacturing firms undertaking R&D, product and process innovations increased steadily throughout the 1990s. In Ireland the construction industry boosted economic development as foreign businesses could find favourable conditions for setting up their businesses. Initially tax and grant incentives were given to firms which were later on complemented by high killed labour that could be utilized in high tech businesses.