THE IMPACT OF INNOVATION ACTIVITY ON SOCIO-ECONOMIC PERFORMANCE: EMPIRICAL EVIDENCE FOR EUROPEAN COUNTRIES

Innovations are the drivers of economic development. This thesis is commonly accepted and has been discussing in many theoretical papers. However, there seems to be a lack of empirical evidence that innovations are affecting socio-economic performance. The aim of this article is to provide arguments for this effect using econometric approach. To characterise innovation activity, we use the Summary Innovation Index of EU and consider several indicators of economic, social and energy effectiveness, using the approach of the EU working group. The connection between innovation and economic performance is strong for all European countries, and the economic crisis has made this relationship even more strong. However if we divide countries into groups according to their innovation performance, the most substantial relationship turns out to be the one between metrics of innovation activity and state wealth and not the labour productivity, at least in the case of the Innovation leaders. It is shown that innovation performance can be regarded as Granger cause for GDP per capita, the unemployment rate, energy effectiveness, but not labour productivity or income inequality. Quantile regressions have been used to consider the impact of innovation activity on socio-economic performance in different countries. It is shown that the effect of innovation performance is considerably stronger for countries less efficient concerning socio-economic performance, but not environmental performance.