An innovative perspective on the impact of innovation on global competitiveness: Comparative analysis of EU13 and EU15 countries

Abstract

This study examines the relationship between innovation and global competitiveness in European Union (EU28) member states and the differences between EU13 and EU15 countries categorised by wealth level from 1997 to 2019. The study employs the Parks-Kmenta panel data method considering heteroscedasticity, serial correlation and cross-section dependence to analyse the impact of innovation, income inequality, unemployment and labour force share in national income on global competitiveness. The results reveal that innovation has the highest positive effect on global competitiveness, with a 1% increase in the innovation index leading to 13.4% and 11.1% increases in global competitiveness for the EU28 and EU15-EU13, respectively; a 1% increase in income inequality leads to a 0.53% and 0.55% increase in global competitiveness for the EU28 and EU15-EU13, respectively; a 1% increase in unemployment causes a 0.12% and 0.13% decrease in global competitiveness for the EU28 and EU15-EU13, respectively; a 1% increase in labour's share in national income results in a 0.18% and 0.17% decrease in global competitiveness for the EU28 and EU15-EU13, respectively. The analysis also shows that EU15's global competitiveness is 11.7% higher than EU13. This study concludes that innovation is the primary determinant of global competitiveness; however, it may come at the cost of a decrease in labour's share in national income and income distribution equality.