Economic Growth, Volatility, and Innovation for the EU-27

The present study applies, along general lines, the methodology used in Ramey&Ramey (1995), and Kroft, Lloyd-Ellis (2002), respectively, to analyze the dependencies between growth, volatility and innovation in the case of the EU-27 and CEEC (new member states from Central and Eastern Europe) countries, respectively. Unlike the above-mentioned papers, which use human capital as proxy for innovation, we use as indicator of innovation the Summary Innovation Index(SII),  proposed by the European Innovation Scoreboard (EIS).

Using the EVIEWS econometric software, we estimate regressions of the GDP growth rate on its total volatility, as well as on its partial volatilities, split with respect to the phases of the economic cycle.

We also estimate regressions of the innovation rate on the GDP growth rate volatilities, as well as regressions of the GDP growth rate on the rate of innovation and the split volatility of the GDP growth rate.

We find positive dependencies of the GDP growth rate on its own volatility, as well as on the innovation rate.

The sources of the data are EUROSTAT, the National Statistical Institute of Romania (INS), and the European Innovation Scoreboard.

Selected References

• Kroft, Kory, and Huw Lloyd-Ellis (2002)” Further cross-country evidence on the link between growth, volatility and business cycles”, Department of Economics Working Paper. Kingston, Ontario: Queens University
• Ramey, G. and V. A. Ramey (1995), “Cross—Country Evidence on the Link Between Volatility and Growth,” American Economic Review, vol. 85, pp. 1138—1151.