This of course depends on how you define "local innovation" and "informal settings"? Are you refering to "local innovation" as in spatial concentration of firms and associated non-market institutions?

With digital technologies/platforms, it has been argued that innovation in the fringes are enabled. Less efforts, investments and capacities are required when innovation can rest on already made platforms (the downside of this is that the platform owners may be the only reaping the benefits from this).

Some writings on this topic:

Conference Paper Frugal Digital Innovation and Living Labs: A Case Study of I...

Conference Paper Digital Innovation: A Research Agenda for Information System...

Article Innovation in the Fringes of Software Ecosystems: The Role o...

Your question is the difference between a seminal innovation and a merely incremental innovation?

With platform based innovations, the innovations will typically be incremental and not seminal or radical. If it is possible to make a clear distinction between these two types.

Please see the following two papers:

1. Hoffecker, E. (2018). Local Innovation: what it is and why it matters for developing economies.

Available on https://d-lab.mit.edu/sites/default/files/inline-files/Local%20Innovation%20Working%20Paper%2001.pdf

This defines local innovation as "the process and the product of developing and introducing into use new and improved ways of doing things compared to existing practice within a specific local context, which

involve local people and resources in addressing challenges and opportunities present within that context." [quote from the paper]

2. Mitra, S. (2019). Forecasting Diffusion of Innovative Products Using the Bass Model at the Take-off Stage: A Review of Literature from Subsistence Markets. Asian Journal of Innovation and Policy, Vol 8 (1).

"....Grassroots Innovation; a classic example being re-chipping of mobile phones, resulting in low-cost-innards within a high-end body of a phone 

Frugal Innovation; innovations that are not only low-cost, but also low-demand in other resources. A classic example is the Nokia 1100 mobile phone, described as the “world’s best-selling phone...”. (p.144). [quote from the paper].

It indicates that local innovations use resources to address a challenge within a very local context, say, for instance the problem of groundwater contamination in a very specific geological context. This is NOT the case with grassroots innovation or frugal innovation.

That is indeed an interesting perspective. I think that with digital technologies, and in particular, software platforms, the distinctions between the “global” and the local get blurred. While the platform itself may be generic and developed “elsewhere”, it may offer the required plasticity and malleability to make what is built on top of it useful in a very particular context. But this is perhaps a trait that does not transfer to other, non-digital, innovations.

Frugal innovation can be developed locally, but it does not necessarily mean that frugal and local innovations are the same thing. I think local innovation is more understood when compared to global innovation. In this case, when a kind of innovation is developed by a subsidiary and then this innovation is fostered by other subsidiary located in another country or even adopted by the parent company, you have an example of local innovation becoming global.

On the other hand, Grassroot innovation are local solutions developed for very specific local problems using local resources and materials as well. It also encompasses traditional knowledge, unique skills of grassroots communities and individuals, while local innovations can be developed by external actors like subsidiaries from foreing multinational companies also using external resources for instance. Frugal innovations appear as an alternative for companies because they focus on core functionalities and performance, that concentrates on substantial cost reduction through the minimization of resource use, and that is oriented towards a sustainable co-creation.

Leandro Lima dos Santos, the distinction you make between local and global is interesting, and ways in which local innovation can be become global can be described as open generification: Article Open Generification

One way to differentiate would be to find who are the

1) agents of innovations

2) users of innovation

3) source of material for the innovation

4) informal network or formal network in developing innovation

If the developer of an innovation is a local person and users are the community or themselves, and the source of material has been their own locally available resources and use of informal networking in financing the innovation, taking design help, user feedback has been there, then innovation could be grassroots innovation (by the grassroots)...

Similarly there has been grassroots innovations (for the grassroots) which can come from formal sector, civil society organisations, companies.