Capabilities, Innovation and Economic Growth in EU Regions

This article discusses the links between human development, innovation and economic growth. After a brief theoretical preamble, I present a framework bringing together the relationships between those processes in a circular causation diagram. I then examine these relationships using data on 266 European regions covering the period 2000-2015. I test two econometric models: one based on panel (3SLS), the other on spatial analysis (SAR). The first helps me explore, in more detail, the relationship between innovation, human development and income. The results indicate a mutually reinforcing relationship between them. The associations between human development and innovation, and GDP and innovation are found to be particularly strong. The spatial analysis further confirms the existence of virtuous circles and the presence of spatial interrelationships, both in terms of spillover and feedback effects. Consequently, I argue, these variables should be promoted simultaneously. I highlight two points that seem especially worthy of being developed in future work: the importance of setting human development as the ultimate goal of innovation policy, and the need to formulate macroeconomic policies fostering innovation and human development.