Deconstructing the Education-Innovation-Development Nexus in the EU-28 Using Panel Causality and Poolability Tests

We apply panel econometrics to assess the causal linkages between education, research and innovation (R&I) and economic development for EU-28 countries over the time period 1998–2013. Since this period coincides with the biggest enlargement wave in the EU’s history, we particularly aim at identifying the degree of heterogeneity in this nexus between and within the groups of old (EU-15) and new member states (NMS-13). Our empirical results support the view that education- and R&I-driven economic development varies considerably by country groups and individual countries in the long and short run. As such, we get empirical support for a long-run ‘innovation paradox’ for the EU-15, while we find evidence for education-led economic development in EU-15 countries. Contrarily, for the NMS-13, R&I activities are identified as significant driver of economic development in the long and short run, whereas the link between education and economic development is found to be limited here. The application of poolability tests further shows that NMS-13 countries are more heterogeneous and clustered into sub-groups compared to the economic behaviour of EU-15 countries. The revealed patterns call for a careful reflexion of the current education and R&I policy practice at the EU level to account for prevailing heterogeneities across countries and country groups.