Innovation Versus Income Convergence In Central And Eastern Europe. Is There A Correlation?

The heterogeneity of response of the different economies facing the world economic crisis has brought into attention once again the issue of convergence inside the European Union. The high growth rates experienced by CEEC during the last decade created an optimistic view of rapid convergence towards Western Europe. But the crisis showed that the sources of economic growth in the region were not appropriate for a long run growth. Innovation is a key source of competitiveness and a contributor to a sustainable growth path. Even though CEEC lag behind other European countries in terms of R&D investment, a certain progress can be observed. The objective of the present paper is to establish if there is a correlation between the convergence in terms of GDP and the convergence in terms of innovation for the CEEC. Based on yearly Eurostat data for the period 1998-2008, we quantify the progress of each of the 10 CEEC both in closing the income gap and the innovation gap. We then rank the countries according to their speed of convergence and perform a Spearman rank correlation analysis. The results show that, on average, convergence in R&D is not correlated with convergence in GDP. The Czech Republic is the only country with a positive correlation between R&D intensity and GDP growth. Bulgaria, Hungary and Slovakia show a negative relationship between investment in R&D and economic growth. This implies that for most of the countries in Central and Eastern Europe, economic growth during the period 1998-2008 was mostly driven by non-innovation factors.