Digitalisation and Skills Adequacy as Determinants of Innovation for Sustainable Development in EU Countries: A PLS-SEM Approach

Increasing innovation among the European Union (EU) countries became a primary concern, as it can contribute to higher competitiveness, generate new business opportunities, and promote the achievement of the sustainable development goals. This paper aims to examine the extent to which the EU countries level of digitalisation and skills adequacy impact the innovation output, as well as to determine whether the level of digitalisation can lead to an increase in the individuals competencies and employability. For this research, we leverage a Partial Least Squares - Structural Equation Modelling technique. The data used to achieve the study s objective was collected from composite indicators computed for the 27 EU countries for a period of analysis spanning the years from 2017 to 2020. As a proxy for the digital performance, we use the Digital Economy and Society Index, while for skills adequacy and innovation output, we utilise the European Skills Index and the dimension of innovation output dimension of the Global Innovation Index. The results indicate a statistically significant impact between the level of digital performance and innovation output, with a moderate effect size, partially mediated by skill adequacy. Moreover, the findings emphasise that a higher level of digitalisation determines an increase in the individuals employability and competencies. The study enhances the understanding of the complex relationship between digitalisation, skills, and innovation by shedding new light on the trajectories coevolution of the analysed constructs, presenting some implications for policymakers and governments, and providing theoretical suggestions for future research.