Abstract: The Republic of Karelia has a number of positive features compared with other northern regions of the Russian Federation, since it has a rather lengthy border with Finland, and accordingly it has connections with the markets of the European Union.  Usually such a factor may facilitate diffusion of innovative and investment activities into the Republic from the developed states.  Additionally, the Republic has a developed scientific and educational basis. However, the level of innovative and investment activities in Karelia is among the lowest in the North-Western Federal District, and in Russia in general.  The article includes analysis of innovative and investment activities in the region and the limitations precluding innovative development.  The authors reflect the tendencies of social and economic development in the region, taking into account various factors, such as progressive structural  moves in the economy, changes in the values and attitudes, investor motivation, etc.  Having evaluated innovative potential of development of the regional economy, the authors come to a conclusion that its greater involvement into the market turnover shall facilitate the improvement of the economic positions of the region, making it more competitive, and it shall also provide for stability in the labor market and demographic processes.  However, if a inertia scenario is followed without the direction towards innovative economic development, the destructive tendencies in production mobility, human capital mobility shall be strengthened, which is evidenced by the negative migrant flow.