Comparative Economic Research, Volume 20, Number 4, 2017

10.1515/cer-2017-0028

Lejla Terzić

LEJLA TERZIĆ*

The Role of Innovation in Fostering Competitiveness and Economic

Growth: Evidence from Developing Economies

Abstract

This paper deals with the essential features determining the role of innovation
in developing economies by examining the structure of innovation measures. The
economic growth and competitiveness of developing economies are powerfully
connected to its innovation status. The purpose of this paper is to examine the
significance of innovation in driving economic growth per capita and competitive‑
ness in selected developing economies. In order to determine the interconnection
among the variables of innovation, competitiveness, and growth, assorted meth‑
odological measurement instruments have been applied. The data were collected
from both primary and secondary sources. The results suggest the importance
of specific innovation dimensions for prospective economic growth in developing
economies. The identical measures responsible for fragile innovation are associ‑
ated to the low composite measures of innovation accomplishment. This demon‑
strates the enormous disparity concentrated in every innovation aspect over time,
specifically in innovation output and enterprise performances between the devel‑
oping economies and the EU–28 average measures. The research results indicate
the usage of appropriate economic instruments in diminishing the problems that
developing economies are currently dealing with.

Keywords: innovation, competitiveness, economic growth, developing

economies, EU–28

JEL: O31, O40, O57

*
  Ph.D, Assistant Professor at Faculty of Economics Brčko, University of East Sarajevo, Bos‑
nia and Herzegovina, e‑mail: lejla.terzic.efb@gmail.com
66 Lejla Terzić

1. Introduction

Various research studies have emphasised the importance of innovation in sup‑

porting competitiveness and economic growth. The innovation performance ba‑
rometers evaluated by the innovation indices can be valuable in comparisons be‑
tween economies, and they contribute precious information for economists and
policy makers. This paper investigates the fundamental features which, while not
encouraging, are ongoing and distinguish the innovation performance in develop‑
ing economies, also including their consequences on accumulated indices. There‑
fore, an examination was carried out of the structural components of innovation
indices affecting competitiveness and economic growth in selected developing
countries. The inspiration for this research results from detecting the endurance
of measures that differently influenced innovation in the EU–28 and developing
economies, a topic that had not gotten appropriate attention in recent years by in‑
novation policymakers, but continues to restrict innovation, competitiveness, and
economic growth. A comparative study of innovation and competitiveness in se‑
lected developing economies was thus carried out, recognizing and featuring the
meaningful disparities in relation to alternative economies, and focusing primar‑
ily on innovation indices.
The article demonstrates that the innovation performance in developing econ‑
omies is greatly connected to their competitiveness rank. The identical indices re‑
sponsible for fragile competitiveness are associated with weak innovation perfor‑
mance measures. This framework, compared with the EU–28 average measures,
suggests major divergences in every innovation aspect, specifically in innovation
output and enterprises’ performances. The conducted investigation shows that the
usage of adequate economic tools can alleviate the difficulties that exist in devel‑
oping economies.

2. The Role of Innovation in Fostering Competitiveness and Economic

Growth – a Theoretical Overview

The role of innovation is valuable at each stage of growth and development, be‑
cause the formulation and dispersion of new technologies are precious for eco‑
nomic growth and competitiveness worldwide. The importance of innovation was
identified by Adam Smith (1776, pp. 7–24) in the “An Inquiry into the Nature and
Causes of the Wealth of Nations”, wherein he indicated the new group of special‑
ists ready for productivity advancement via knowledge. Joseph Schumpeter (1934,
pp. 61–116), highlighted that innovation is a keystone of economic performance.
 The Role of Innovation in Fostering Competitiveness… 67

Many economists continued, revised, and expanded upon Schumpeter’s theory

e.g. John Kenneth Galbraith (1967, pp. 135–210), and Richard Goodwin (1946,
pp. 95–104) created a modelling method of economic performance in order to ex‑
amine the interplay between business activities and economic growth. Grossman
and Helpman (1991, pp. 6–15) enhanced growth theory by analysing the role of the
innovation in fostering economic growth. They analyzed innovation performance
and economic growth in the global economy, and investigated the resources which
contribute to long‑term growth.
Various categories of innovation may play dissimilar roles at distinctive lev‑
els of development. In the initial stages of growth and development, accumula‑
tive innovation is related to the acceptance of technology from another country.
High‑tech and institutional reversals are analysed utilizing modern phrasing: dis‑
similar categories of innovation have been the focus of examination in several basic
studies in classical economics. Then neoclassical economics basically discarded
inquiries focusing on fluctuations, and instead concentrated on expansion, simi‑
lar products/services, declining recovery in terms of range, and new technologies
available to every manufacturer at zero cost, as well as properly skilled econom‑
ic operators and absolute competition. Technological alterations were considered
as external to the economic structure, while other categories of innovation were
not deliberated upon.
Within the theoretical framework on enterprise innovation performance and
open‑market activities, mainstream economics has moderated the most impracti‑
cal presumption of neo‑classical economics, principally valid facts, regulated sur‑
roundings, and perfect competition. However, some principal imperfections have
endured: institutional questions are not examined appropriately in the above‑men‑
tioned sections of economics, nor is a very precise approach of unpredictability
applied.
There is no appropriate theory with respect to the formation of knowledge
applicable in innovative activities and technological interdependence between
enterprises. The influence of government has not been examined in a way that
could support constructive counselling to economic policy‑makers (ed. Fagerberg
et al. 2004, pp. 1–599, Foray 2009, pp. 2–21; Lazonick, 2013; pp. 2–35, Radošević
and Yoruk 2013, pp. 1015–1038; Lundvall, 2002, pp. 1–219; 2006, pp. 63–74, Smith,
2000, pp. 73–102). Two major methods of economic growth through innovation
have been discovered: 1) technological competitiveness, focused on improving
innovation performance by developing new goods/services or new market en‑
tries; and 2) growth accumulated by cost competitiveness focused on innovation,
substituting human labour and industrial technology (Bogliacino, Pianta, 2011,
pp. 41–53).
Considering that developing economies have had a market economy with ba‑
sic investments during the recent period, one may ask: have national investments
in innovation and the use of European funds had an impact on economic growth?
68 Lejla Terzić

Innovation based on research and development and high‑technologies are impor‑

tant for later levels of development in emerging economies, mostly in progressive
businesses. Table 1. below presents an overview of miscellaneous features of in‑
novation.

Table 1. The Role of Innovation in Developing Economies – An Overview of Miscellaneous

Features of Innovation
Economy and
Instrument/aim Category Basic operators
category
of innovation of innovation incorporated
Classification
Developing/low in‑ Acceptance requires Accumulative inno‑ Research institutes, uni‑
come economies, authorization‑ vation established versities,
emerging and mid‑ Innovation needs to an‑ on acceptance private businesses, espe‑
dle‑income econo‑ swer individual local of foreign innova‑ cially those with expo‑
mies terms for outcomes tion and new tech‑ sure to foreign markets
nology and businesses
Comprehensive inno‑ Accumulative innova‑ Small and medium Mobile banking services
vation: tion based on enterprises, public
Innovation for low foreign technology and and private organ‑
or middle income knowledge. Public in‑ izations involved
economies to enhance novation is supportive in distributing
prosperity and busi‑ for technical innova‑ knowledge by net‑
ness opportunities tions in societies. works, to private
businesses
Mostly middle‑in‑ Developing the inno‑ Accumulative inno‑ Requires complete ex‑
come countries and vation scopes that are vation and radical pansion of innovation
chances for develop‑ crucial for embracing innovation with the systems, including dias‑
ment for low‑income the world technologi‑ capacity to chal‑ poras as a bond
economies cal boundary in specif‑ lenge superior
ic industries important world innovators.
to prevent middle in‑
come ambush
Locate environmen‑ Primary innovations Universities and re‑ Important private busi‑
tal, health and pub‑ and scientific research search institutions nesses operating in these
lic disputes through operated in global connected to global sectors.
global and local inno‑ partner­ships and mar‑ networks.
vation exertions. ginal innovation.
Mostly middle‑in‑ Maintain competitive‑ Innovation is adapt‑ Incorporates mostly
come countries and ness in frontier indus‑ ed to devel­oped the private sector in in‑
chances for develop‑ tries when the country economies and terplay with public re‑
ment of low‑income is already at the fron‑ leads to growth search institutions and
economies tier. in the global mar‑ universities.
kets.
Source:  Summarization by author.

The creation and dispersion of innovation depend on new technological knowl‑

edge, which is produced by connections among various sources of innovation
 The Role of Innovation in Fostering Competitiveness… 69

in a comprehensive innovation system (Tidd et. al, 2016, pp. 57–65; Barney and
Clark, 2007, pp. 3–265; Chesbrough, 2006, pp. 2–245; Chaminade and Edquist,
2005, pp. 1–47; Fagerberg, 2004, pp. 514–544; OECD, 2012., pp. 3–29). The per‑
ception of innovation sources can be described as generated knowledge that en‑
terprises and organizations use for enhancing innovation and achieving success
on the market. To encourage innovation, enterprises can receive information from
research institutes, government authorities, consultants, and universities. The im‑
portant international organizations evaluate various indicators valuable for re‑
searching the role of innovation in fostering competitiveness and economic growth
(the Summary Innovation Index measured by Eurostat, the Global Competitive‑
ness Index and Innovation sub‑index prepared by the World Economic Forum).
The level of productivity later influences economic growth rates. Various factors
foster productivity, competitiveness and economic growth. The global competitive‑
ness index (GCI) summarises the competitiveness components of an economy.
The GCI is constructed by accumulating adequate scores. The scores related
to innovation are extremely independent, e.g. innovation pillar twelve – a strong
capacity for innovation is a challenge to implement without a well‑educated and
skilled workforce (pillars four and five) that should absorb technologies (pillar
nine), beyond accepted funding (pillar eight), a good market efficiency (pillar six),
and also rely on the quality of business networks in a country and the quality of in‑
dividual enterprises’ operations and strategies (pillar eleven).

3. Composite Measures of Innovation Accomplishment

The discussion of Research and Development (R&D) as an undeveloped stage

in the process of innovation partially results from the relations between variables
of economic growth and R&D.
An Empirical model that is often used for constructing an R&D economic
growth model is based on the following postulates: (Romer 1990, pp. 71–102):
• innovation and technological change accelerate economic growth;
• technological change is the result of planned innovation activities established
by human resources that correspond to market challenges; and
• designs used for new products are competitive. 
• designs used for new products are competitive.
The finalThe 
innovative output is created
final  innovative  by application
output  is  of Cobb‑Douglas
created  by  application  pro‑
of  Cobb‑Douglas
ductionproduction function:
function:
 1  

 H y , L, x   H Y L
 
 x(i) di (1) (1)

where,  H,  L  and  x  are  human  capital,  labour, and  producer  durables, 
respectively.  Building  new  designs  in the Research  and  Development  sector 
incorporates: 
H I as  total  human  capital  in  R&D,  I  as  the  knowledge  stock  and  I as
70 Lejla Terzić

where, H, L and x are human capital, labour, and producer durables, respectively.
Building new designs in the Research and Development sector incorporates:
∗
H I as total human capital in R&D, I as the knowledge stock and I as Innovation
or technological change.
∗
I = δΗ θI I (2)

The most important assumption in the presented equations that foster econom‑
ic growth is related to the evidence that the creation of new products is continu‑
ous in human resources that operate in R&D subdivisions, and knowledge stock
θ = 1 . By reason of the proportion in the equations, feasible products are provid‑
ed to a similar degree and should be designated as x.

Κ (t ) = Υ(t ) − C (t ) (3)

The analysis is additionally interpreted by a premise that consumer goods

do not devaluate. Adding devaluation could simply enumerate a recognizable
phrase to the consumer expenditure of capital. Aligned with the typical particular
subdivision model and in compliance with country revenue, including conventions,
it is valuable to designate an estimating scope of total capital K as an aggregated
output. Therefore, K (t) incorporates fundamental K at time t, where C(t) designates
aggregated consumption at time t. It takes n entities of consumption to coordinate
an individual entity of any category of consumer goods.
∞ I
K = η ∑ xi = η ∑ xi (4)
i =1 i =1

The already stated aggregated measure K is connected to the consumer goods

that are absolutely used in manufacture. So, H and L are established, and K in‑
creases by the amount of consumption. It remains to determine the method for the
aggregation of new ideas, that is, for the expansion of I .
Because I  determines the rank of permanent goods that could be created, and
because η entities of enterprise output are necessary, it is necessary to clarify for
K
x from the comparison that K = ηIx and replace x = inside the ending model
of the production capacity. ηI

Υ ( Η Y , L, x ) + ( Η Y I ) α ( L
I ) β ( K )1−α − β η α + β −1 (5)

The above‑mentioned equations include nominal expectations and practical

model assumptions. The last line of the comparison shows that the model operates
just like the neoclassical growth model with labour and human capital improving
 The Role of Innovation in Fostering Competitiveness… 71

technological diversity. In particular, it shows the regular decreasing return on cap‑

ital aggregation. Given the affected model of choices, an established permanent
level of I should point to an equilibrium with a reliable condition in which the lev‑
el of K is driven by the necessity that the borderline product of capital is balanced
to the discount ratio.
If I develops at an exigently particularized exponential ratio, the economy would
mobilize to a boundary on which K grows at the similar exponential ratio as I. Based
on the transition route, the ratio of K to I should adjust, which indicates that y and x
would change as well. Along the equalized growth path, X(i) and the measures of K
to I are all fixed. The absence of convexity is observable in the interpretation for the de‑
finitive output as a function of major inputs of the presented model (H, L, K, and I).
Research and Development has an explicit connotation for innovation appli‑
cable in enterprises. They are engines for an indirect influence on enhanced goods
and services in aiding innovation by creating a capacity for absorption, adjusting
adequate technologies, and circulating exploitation. The Global Innovation Index
(GII) has a considerable and extensive inclusion, in the following aspects: it in‑
cludes over 100 countries, and deals with over 80 indicators, arranged in seven
innovation pillars. The seven pillars used in the 2016 issue of the GII are: Insti‑
tutions, Human capital and research, Infrastructure, Market sophistication, Busi‑
ness sophistication, Knowledge and technology outputs and Creative outputs.

4. Research Results: a Comparative Analysis Among Selected Developing

and EU–28 Economies

Evaluation of the importance of the above‑mentioned innovation pillars, and nota‑

bly the engagement among the subjects (or titles) apprehended by the seven indi‑
cators, would exceed the scope of this article. In brief, GII effects are clearly con‑
ferred, outside determining their capacity for systematic policy intentions. Table 2.
presents the innovation performance rankings in selected developing economies.
The study was conducted in 10 economies (Estonia – EST, Czech Republic – CZE,
Slovenia – SLO, Hungary – HU, Slovakia – SVK, Latvia – LV, Lithuania – LT,
Bulgaria – BGR, Poland – PL, Romania – RO), and the data for each economy
cover the period 2008–2016.
Estonia and the Czech Republic have accomplished an enhancement in inno‑
vation and obtained a high rank during the recent period, compared to the other
economies. Several economies have developed their innovation potential: Slove‑
nia achieved an increased rank from 4th in 2008/2009 to 3rd in 2016; and Hungary
reached ranking 4 in 2016/2017. Also, Lithuania, Bulgaria, Poland and Romania
improved and settled their position. On the other hand, Slovakia has demonstrated
72 Lejla Terzić

a worsening position during the eight years observed. The growth of innovation
in the EU 28 and selected economies was estimated on data from 2016–2017.

Table 2. Rankings of the Global Innovation Index, 2008–2016

Country/economy 2008/2009 2010 2011 2012 2013 2014 2015 2016/2017
EST 29 (1) 29 (3) 23 (1) 19 (1) 25 (1) 24 (1) 23 (1) 24 (1)
CZE 33 (2) 27 (2) 27 (3) 27 (3) 28 (2) 26 (2) 24 (2) 27 (2)
SLO 36 (4) 26 (1) 30 (4) 26 (2) 30 (3) 28 (3) 28 (3) 32 (3)
HU 47 (6) 36 (4) 25 (2) 31 (5) 31 (4) 35 (5) 35 (5) 33 (4)
SVK 35 (3) 37 (5) 37 (6) 40 (7) 36 (6) 37 (6) 36 (6) 37 (7)
LV 60 (8) 44 (7) 36 (5) 30 (4) 33 (5) 34 (4) 33 (4) 34 (5)
LT 42 (5) 39 (6) 40 (7) 38 (6) 40 (7) 39 (7) 38 (7) 36 (6)
BGR 74 (10) 49 (9) 42 (8) 43 (8) 41 (8) 44 (8) 39 (8) 38 (8)
PL 56 (7) 47 (8) 43 (9) 44 (9) 49 (10) 45 (9) 40 (9) 39 (9)
RO 69 (9) 52 (10) 50 (10) 52 (10) 48 (9) 55 (10) 54 (10) 48 (10)
Source: The Global Innovation Index Report, different editions (2008/2009, 2010, 2011, 2012, 2013,
2014, 2015, 2016), and own calculations.

Table 3. presents the economies’ rankings in terms of each summary innova‑

tion index, the total global competitiveness index, and gross domestic product per
capita in 2016–2017. In an effort to reveal the complete ranking of the selected 10
developing economies, they are presented in Table 1 in the classification of their ag‑
gregate rankings. From that angle, it can be seen that Hungary has indicated some
variations in 2011 and 2012, while the ranking of Bulgaria has significantly alter‑
nated during the eight years observed. The accumulative Research and Develop‑
ment measure in various economies is a valuable measure for the R&D sector, the
performance of industry, and macroeconomic and microeconomic dynamics.
Total gross expenditure on research and development – GERD – can be help‑
ful for articulating R&D spending in every sector of an economy. The connections
between different innovation, competitiveness and economic growth variables are
presented in Table 4. Pearson’s correlation coefficients have indicated a linkage
among crucial variables, especially between various dimensions of the Summary
Innovation Index –SII (Human Resources – HR, Research System – RS, Finance
& Support – FS, Firm Investments – FI, Linkage & Entrepreneurship – LE, Intel‑
lectual Assets – IA, Innovators – INN, Economic Effects – EE), GCI, GII, GDP
per capita, GDP growth and GERD. The data were collected from primary and
secondary sources. The research was carried out using the SPSS 23 statistical soft‑
ware package.
Different suggestions can be accentuated from the conducted empirical re‑
search in selected developing economies:
• There is a powerful positive correlation between GERD and GII (0.806);
• A very strong positive correlation exists between GDP per capita and GERD
(0.927);
 The Role of Innovation in Fostering Competitiveness… 73

• The positive relationship between the Summary Innovation Index (SII) and RS,
INN and LE indices, as shown by correlation coefficients of 0.947, 0.887 and
0.947 respectively, indicates that innovation performance depends on a devel‑
oped research system, improved conditions for entrepreneurship, and a high‑
er degree of innovation performance in selected developing economies;
• There is a significant positive correlation between GII and GDP per capita
(0.794);
• The positive interdependence between firm investments and research systems
(0.830) indicates that attracting investments in the small and medium‑sized en‑
terprises (SMEs) sector strongly depends on the developing research system;
• The strong linkage between Innovators and the Research System (0.867)
demonstrates achieving a higher rank of national research and innovation
systems depends on the number of innovators.

Table 3. Developing economies indicators ranks relative to the EU 28 according to innovation

elements in 2016–2017
Elements EST CZE SLO HU SLK LV LT BGR PL RO
Summary Innova- 86 83 93 68 67 54 54 46 56 34
tion Index (9) (8) (10) (7) (7) (4) (3) (2) (5) (1)
Human resources 96 98 144 80 112 93 126 87 97 68
(5) (7) (10) (2) (8) (4) (9) (3) (6) (1)
Research system 73 64 83 47 36 36 29 19 27 24
(9) (8) (10) (7) (6) (5) (4) (1) (3) (2)
Finance and sup- 148 91 49 56 52 87 110 21 56 14
port (10) (8) (3) (5) (4) (7) (9) (2) (6) (1)
Firm investments 130 95 111 86 63 100 83 50 85 20
(10) (7) (9) (6) (3) (8) (4) (2) (5) (1)
Linkage &entrepre- 96 89 122 43 44 22 35 15 20 9
neurship (9) (8) (10) (6) (7) (4) (5) (2) (3) (1)
Intellectual assets 77 60 87 51 43 59 46 90 70 27
(8) (6) (9) (4) (2) (5) (3) (10) (7) (1)
Innovators 80 90 80 61 79 51 21 35 40 37
(9) (10) (8) (6) (7) (5) (1) (2) (4) (3)
Economic effects 56 88 74 99 86 44 29 31 53 48
(6) (9) (7) (10) (8) (3) (1) (2) (5) (4)
Global Competitive- 30 31 59 63 67 44 36 54 41 53
ness Index – GCI (1) (2) (8) (9) (10) (5) (3) (7) (4) (6)
Global Innovation 24 27 32 33 37 34 36 38 39 48
Index – GII (1) (2) (3) (4) (7) (5) (6) (8) (9) (10)
GDP per capita 42 41 39 59 49 56 53 83 60 69
(3) (2) (1) (7) (4) (6) (5) (10) (8) (9)
GDP growth 9 5 7 8 1 4 6 3 2 10
GERD 3 2 1 5 4 8 6 9 7 10
Source: Summary Innovation Report 2016, Global Competitiveness Report 2016–2017, Eurostat
GDP database and own calculations.
 Table 4. Connection between different innovation, competitiveness and economic growth variables 74

GDP
SII HR RS FS FI LE IA INN EE GCI GDP pc. GII GERD
growth
SII 1 .515 .947** .348 .779** .947** .348 .887** .743* ‑.012 ‑.839** .072 ‑.803** ‑.947**
HR .515 1 .479 .333 .333 .636* .164 .273 .067 ‑.091 ‑.745* ‑.333 ‑.333 ‑.685*
RS .947** .479 1 .406 .830** .964** .212 .867** .673* ‑.079 ‑.903** .285 ‑.891** ‑.927**
FS .348 .333 .406 1 .600 .430 .067 .297 .006 ‑.745* ‑.467 .030 ‑.612 ‑.394
FI .779** .333 .830** .600 1 .758* .467 .697* .345 ‑.370 ‑.709* .224 ‑.867** ‑.685*
LE .947** .636* .964** .430 .758* 1 .273 .818** .600 ‑.079 ‑.939** .139 ‑.867** ‑.976**
IA .348 .164 .212 .067 .467 .273 1 .224 ‑.055 ‑.200 ‑.139 ‑.139 ‑.358 ‑.273
INN .887** .273 .867** .297 .697* .818** .224 1 .794** ‑.115 ‑.770** .115 ‑.770** ‑.818**
EE .743* .067 .673* .006 .345 .600 ‑.055 .794** 1 .285 ‑.467 .091 ‑.479 ‑.661*
GCI ‑.012 ‑.091 ‑.079 ‑.745* ‑.370 ‑.079 ‑.200 ‑.115 .285 1 .200 ‑.224 .333 .079
GDP pc. ‑.839** ‑.745* ‑.903** ‑.467 ‑.709* ‑.939** ‑.139 ‑.770** ‑.467 .200 1 ‑.103 .794** .927**
GDP growth .072 ‑.333 .285 .030 .224 .139 ‑.139 .115 .091 ‑.224 ‑.103 1 ‑.309 ‑.067
GII ‑.803** ‑.333 ‑.891** ‑.612 ‑.867** ‑.867** ‑.358 ‑.770** ‑.479 .333 .794** ‑.309 1 .806**
Lejla Terzić

GERD ‑.947** ‑.685* ‑.927** ‑.394 ‑.685* ‑.976** ‑.273 ‑.818** ‑.661* .079 .927** ‑.067 .806** 1
Source: Author’s own calculation.
 The Role of Innovation in Fostering Competitiveness… 75

Compound innovation measures appear in various forms and capacities. Spec‑

ified innovation indices and measures are the result of an instrument panel of in‑
dicators circulated by different international affiliations, but compound innovation
measures and indicators are the main products and are accompanied by indices that
allow for comprehension of economic rankings. Separate from innovation indices,
competitiveness indices related to Research & Development activities are based
on typical innovation gauges, and some even involve a pillar designated as ‘inno‑
vation’. Several aggregate innovation indices have been adapted in recent years,
especially in terms of their methodological features. In parallel with the results
of conducted analyses, the indices became more inclusive, taking into account cir‑
cumstances, indicators, economies, and years. Methodology differences could cre‑
ate individual uncertainties as they create non‑comparable classifications. There‑
fore, the most powerful indicators should be concentrated on calculating values
in past years applying the latest methodology, which permits cross‑country com‑
parison. The SII offers a comprehensive depiction of national innovation systems
in economies with various features, and allows for understanding innovation per‑
formances as a multi – structural phenomenon.

5. Economic Instruments and Diminishing the Problems of Fragile

Innovation Performance

Many surveys have indicated that the innovation plays a crucial role in fostering
competitiveness and economic growth, which means that performances produce
new value through knowledge as a focal issue. In this regard, economic instru‑
ments or tools should be directed to the following issues: knowledge diffusion,
augmentation of innovation support, technological changes, enhancing innova‑
tion strategies, developing human resources, new skills, and firm competitiveness.
There is an extensive list of problems in the theoretical and conceptual approach‑
es when observing the innovation features that identify input elements of innova‑
tion measures.
A few illustrative examples are related to the usage of policy intervention.
High education and the expansion of skills are major performances in the in‑
novation structure because the formulation of individually‑adapted knowledge
skills are crucial input elements for innovation performances. Specific problems
could demand policy intervention in the event of a disparity between enterpris‑
es’ short‑term requirements and the long‑term enhancement of their knowledge
on the labour market. Policy intervention securing a long‑term supply of knowl‑
edge skills should be authorized in sectors where this disparity creates a problem
for innovation performances.
76 Lejla Terzić

The next significant issue in the conceptual framework is to determine the
policy tools or economic instruments usually carried out by government officials
to diminish fragile innovation policy problems. Evidence from developing econ‑
omies indicates the great variety of economic policy instruments directly redis‑
tributed by governments in pursuing distinctive aims in distinctive fields of inno‑
vation structure. These could be arranged in accordance with the areas in which
they perform, ensuring an overall consistency in the arrangement of economic
policy instruments.
In terms of policy creation, the selection of economic instruments is still far
from being fostered by a specific conception of goals. Frequently, economic poli‑
cy tools are not formulated with respect to individual problems. Relatively speak‑
ing, a specific overview of goals could be taken from other authorities’ parallel
and/or identical interventions, selected to respond to the most common and inad‑
equately examined motives for policy intervention.

6. Conclusions

The purpose of  this paper was to  investigate the significance of  innovation
in driving economic growth per capita and competitiveness in the following se‑
lected developing economies: Estonia, Czech Republic, Slovenia, Hungary, Slo‑
vakia, Latvia, Lithuania, Bulgaria, Poland, and Romania. With the aim of deter‑
mining interconnections between the variables of innovation, competitiveness
and growth, assorted methodological instruments have been applied. The re‑
search results have revealed positive relationships between the Global Innova‑
tion Index, GERD, GDP per capita, the Summary Innovation Index, Research
Systems, Firm investments, Innovators and Linkage & Entrepreneurship. Ac‑
cording to the calculated correlations, it can be concluded that innovation per‑
formance depends on a developed research system, improved conditions for
entrepreneurship, and a higher degree of innovation performances in selected
developing economies.
The conducted investigation has put forward a comprehensive, empirical, and
theoretical review of the problems, economic instruments, tools, goals and policies
that are related to every performance or input element in the innovation structure.
This can serve to assure not only a strong foundation for accepting the multiplicity
of innovation activities, but also to enhance the future theoretical bases for appro‑
priate policies and surveys about specific countries and economies.
Additionally, innovation measures are crucial for a wider analysis concerning
the total innovation performances with respect to input and output scales. There‑
fore, the paper has revealed an enormous disparity – found in every innovation
 The Role of Innovation in Fostering Competitiveness… 77

aspect during the observed years, specifically with respect to innovation output and
enterprises’ performances – between the developing economies and the EU–28 av‑
erage measures.
Innovation indices are not sufficient analytical instruments because they do not
differentiate inputs from outputs or inputs of innovation elements placed together
in a unique measure. In ignoring the theoretical framework about innovation per‑
formances in economics and innovation structure approaches, cumulative indices
do not achieve their stated aims of augmenting economic policy counselling.
The repetitive actions of theoretical and practical examinations constitute the
basis for the advancement of economic sciences. The scientific surveys concern‑
ing policy tools are imperative factors in these repetitive actions, not just because
policy tools (the tools authorities need to clarify innovation policy problems) are
items of a systematic analysis based on their individual features, but also because
they are the major pillars for creating research results more important for poli‑
cymakers to aid them in developing policies aimed at diminishing the problems
of fragile innovation performance in developing economies.
The conducted investigation recommends that in  order to  foster economic
growth and competitiveness, concentration should be directed on appropriate poli‑
cies and plans for actions that increase innovation in the developing economies. In re‑
cent years, many European economies have acknowledged the significance of in‑
novation for enhancement of their economic growth, and therefore they have raised
their intentions to develop research systems and innovation in their economies.
However, it is necessary for state authorities of the specific economies to rec‑
ognise the importance of assuring a stable environment in order to augment the re‑
lationship between innovation, competitiveness and economic growth. Firstly, gov‑
ernment authorities should accept the priority of innovation for durable economic
growth per capita. This should be most visible in those economies where the simple
alternatives have been discarded, and future economic growth or competitiveness
relies upon on more effective methods of linking new inputs or upgraded outputs.
Second, state authorities should increase innovation indirectly by supporting the
creation of a suitable atmosphere for companies or SMEs that are ready to enlarge
investment and increase their innovative potential. The government should also
support innovation in a direct way, by financing national research or stimulating
individual investment in the R&D sector. The above recommendations need com‑
petent and effective authorities to create crucial alternatives, with a balance be‑
tween enhancement of the accepted surroundings to encourage innovation, and
the creation of new national or individual leading performers. The proper mixture
of policy aims and instruments could be created to improve an economy’s level
of growth expansion and the stability of a research innovation system, which could
differ both with respect to specific periods and across economies.
78 Lejla Terzić

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Streszczenie

ROLA INNOWACJI W PROMOWANIU KONKURENCYJNOŚCI

I WZROSTU GOSPODARCZEGO NA PRZYKŁADZIE
GOSPODAREK ROZWIJAJĄCYCH SIĘ

W niniejszym artykule przedstawiono istotne cechy określające rolę innowacji w go‑

spodarkach rozwijających się poprzez zbadanie struktury miar innowacyjności. Wzrost
gospodarczy i konkurencyjność gospodarek rozwijających się są silnie powiązane z ich
poziomem innowacyjności. Celem niniejszego artykułu jest zbadanie znaczenia innowacji
dla pobudzania wzrostu gospodarczego per capita i konkurencyjności w wybranych go‑
spodarkach rozwijających się. W celu określenia wzajemnych powiązań między zmiennymi
określającymi innowacyjność, konkurencyjność i wzrost, zastosowano różne metodologie
pomiaru. Zebrane dane pochodzą zarówno ze źródeł pierwotnych, jak i wtórnych. Wyniki
 The Role of Innovation in Fostering Competitiveness… 81

wskazują na znaczenie konkretnych wymiarów innowacji dla przyszłego wzrostu gospo‑

darczego w gospodarkach rozwijających się. Te same miary, które są odpowiedzialne
za słabą innowacyjność, są powiązane z niskimi wartościami złożonych miar innowacyj‑
ności. Pokazuje to olbrzymią rozbieżność, widoczną w każdym aspekcie innowacyjności
na przestrzeni czasu, w szczególności w zakresie efektów innowacji i osiągnięć przed‑
siębiorstw między gospodarkami rozwijającymi się a średnimi wartościami dla UE–28.
Wyniki badań wskazują na konieczność wykorzystania odpowiednich instrumentów go‑
spodarczych dla zmniejszania problemów napotykanych obecnie przez gospodarki roz‑
wijające się.

Słowa kluczowe: innowacje, konkurencyjność, wzrost gospodarczy, gospodarki

rozwijające się, UE–28
Reproduced with permission of copyright owner. Further
reproduction prohibited without permission.