The effect of macroeconomic and environmental factors on innovation in EU member countries

Abstract

This paper examines the long-run relationship between innovation and macroeconomic and environmental factors in the EU during the period 1990–2020. In the paper, the patents are used as a proxy of the innovation index. The market openness, per capita GDP, foreign direct investment, and oil prices are used as proxies for macroeconomic factors whereas per capita energy consumption, per capita CO2 emissions, and renewable energy sources are proxies for environmental factors. For the analysis of this relationship, two-panel count data models are used, the Poisson regression model and negative binomial model as well as the ARDL cointegration technique and the Dumitrescu and Hurlin causality test. The results of the negative binomial model showed that trade openness, renewable energy sources, and CO2 emissions have a significant and negative relationship with innovation, while GDP, investment, energy consumption, and oil prices have a significant and positive relationship with innovation. Furthermore, the causality test of Dumitrescu and Hurlin showed the presence of an unidirectional causal relationship between per capita CO2 emissions and per capita energy consumption towards innovation.