ECONOMICS Feed

THE SPEED OF STRUCTURAL CHANGE: ECONOMIC TRANSFORMATION VELOCITY AND GROWTH IN PERIPHERAL RURAL ECONOMIES

Tue, 01 Sep 2026 00:00:00 GMT

This study examines the relationship between diversification, structural transformation, and economic growth in peripheral rural economies. Although diversification is widely regarded as an important component of rural development, the mechanisms through which it contributes to growth remain unclear. Existing studies often rely on static measures that capture the level of transformation rather than the pace at which structural change occurs. To address this limitation, the study introduces Economic Transformation Velocity, defined as the rate of structural upgrading between two transformation states. The analysis uses longitudinal data collected from 80 household and business units in the mountain regions of Northern Albania between 2023 and 2025, representing 74.8 per cent of the study population. The empirical framework links diversification, investment and finance, economic transformation, transformation velocity, and growth. Composite indices are constructed using Principal Component Analysis, while the hypotheses are tested through robust OLS estimation, nonlinear models, threshold analysis, bootstrap resampling, and additional robustness checks. The results show that diversification is positively associated with economic transformation but has no significant direct relationship with economic growth. Economic Transformation Velocity is more strongly associated with growth, whereas the level of transformation remains statistically insignificant. Nonlinear and threshold analyses further indicate that the growth effect strengthens as transformation velocity increases, suggesting cumulative dynamics of structural upgrading. The study contributes to development economics by distinguishing between transformation levels and transformation dynamics and by introducing Economic Transformation Velocity as an indicator of structural change. The findings suggest that rural economic development depends not only on the degree of transformation achieved, but also on the speed at which structural upgrading takes place.

FROM R&D INVESTMENT TO INNOVATION OUTPUT: EVIDENCE FROM TRANSFORMATION GAPS IN EU COUNTRIES

Tue, 01 Sep 2026 00:00:00 GMT

This paper examines the relationship between research and development (R&D) expenditure and innovation outputs across European Union (EU) member states, with particular emphasis on identifying differences between observed and expected innovation performance after controlling for the structural characteristics of national economies. Special attention is given to the cross-country heterogeneity and temporal evolution of these deviations. The empirical analysis is based on panel data for 27 EU countries covering the period 2011-2024. The relationship between R&D investment and innovation outcomes is estimated using a Correlated Random Effects panel model. Innovation performance is assessed through two complementary indicators: patent activity and high-tech exports. Using the residual component of the model, the paper develops a transformation gap indicator, which measures the extent to which actual innovation output deviates from its expected level, given R&D investment and relevant structural conditions. The findings reveal substantial heterogeneity among EU countries, as well as distinct dynamic patterns in the evolution of the transformation gap. While some countries demonstrate signs of convergence toward expected innovation performance, others experience widening deviations. The paper contributes to the literature by combining static and dynamic perspectives and by providing new empirical evidence on the performance of national innovation systems within the EU.

DIGITAL COMMUNICATIONS AT WORK: EVIDENCE FROM ROUND 10 OF THE EUROPEAN SOCIAL SURVEY FOR 13 FORMER TRANSITION COUNTRIES

Tue, 01 Sep 2026 00:00:00 GMT

The growing use of digital communication technologies, including instant messaging, videoconferencing, and real-time collaboration platforms, has transformed organisational communication and reshaped working conditions across Europe. The effects of these technologies on employees’ work experiences are multifaceted. On the one hand, digital communication can increase autonomy, flexibility, coordination, and efficiency. However, it may create expectations of constant connectivity and continuous digital availability. The widespread adoption of digital tools can therefore improve collaboration while simultaneously increasing the risks of information overload, weakened interpersonal relationships, and technostress. This paper presents selected findings on employees’ attitudes towards digital communication in the workplace, drawing on recent cross-national data from Round 10 of the European Social Survey and covering 13 former transition economies. The survey includes a set of questionnaire items that enable the construction of variables for examining respondents’ perceptions of work-related digital communication practices. The analysis focuses on respondents’ assessments of the extent to which digital communication facilitates work coordination and improves job effectiveness. Particular attention is given to communication with colleagues and line managers in written form, including text messages, emails, and messaging applications, and through screen-based communication such as videoconferencing. The study also considers differences associated with respondents’ sociodemographic characteristics, including gender, age, and educational attainment. The findings contribute to a better understanding of how employees experience digitally mediated communication in the workplace. They also reveal considerable potential for further research into the relationships between digital communication, work-life interference, job satisfaction, labour-market inequalities, technostress, and other relevant dimensions of contemporary employment.

UNLEASHING SUSTAINABLE ENTREPRENEURSHIP: THE NEXUS OF CIRCULAR ECONOMY, SUSTAINABLE TOURISM, AND DIGITALIZATION: EVIDENCE FROM SAUDI ARABIA

Tue, 01 Sep 2026 00:00:00 GMT

This study investigates the effects of the circular economy and sustainable tourism on sustainable entrepreneurship in Saudi Arabia, with digitalisation examined as a moderating factor. A quantitative research design was employed, and data were collected from directors, managers, and employees of small and medium-sized enterprises (SMEs) operating in the tourism and waste recycling sectors. A structured questionnaire, developed through Google Forms, was distributed via email and LinkedIn professional networks. In total, 407 valid responses were obtained and analysed using SmartPLS 4.0, following a two-stage procedure comprising measurement model assessment and structural model evaluation. The findings reveal that both the circular economy and sustainable tourism exert significant positive effects on sustainable entrepreneurship. Moreover, digitalisation strengthens these relationships, confirming its important moderating role. The study contributes to the literature by developing and empirically testing an integrated model of sustainable entrepreneurship in the Saudi Arabian context. Its findings are also aligned with Saudi Vision 2030 and the Sustainable Development Goals, particularly SDG 8, which focuses on decent work and economic growth, and SDG 12, which promotes responsible consumption and production. In addition, the study offers practical and policy implications for fostering sustainable entrepreneurship, digital transformation, and environmentally responsible business practices in emerging economies.

INTERNAL AUDIT FUNCTION AND MODIFIED AUDIT OPINION: EMPIRICAL EVIDENCE FROM EMERGING MARKET

Tue, 01 Sep 2026 00:00:00 GMT

This study investigates how the internal audit function, particularly its sourcing arrangements and the level of investment allocated to it, influences the likelihood of a firm receiving a modified audit opinion. As a key component of an organization’s internal corporate governance and monitoring framework, the internal audit function plays an important role in supporting the quality and reliability of external financial reporting. The study analyses 132 firm-year observations from companies across seven sectors listed on the Main Market and ACE Market of Bursa Malaysia between 2009 and 2011. A logistic regression model with a matched-pairs sample design is employed to examine the relationship between internal audit characteristics and the probability of receiving a modified audit opinion. The findings suggest that greater investment in the internal audit function strengthens its monitoring effectiveness and reduces the likelihood of a modified audit opinion. These results are consistent with the Bursa Malaysia Corporate Governance Guide (2009) and the Malaysian Code on Corporate Governance (2007), both of which recognize internal auditing as a fundamental pillar of effective corporate governance and reliable financial reporting. By exploring the influence of internal audit sourcing arrangements and investment on modified audit opinions in the context of Malaysia, this study extends the existing literature on audit quality and corporate governance while providing empirical evidence from an emerging Asian economy.

HOW THE DIGITAL ECONOMY AFFECTS GDP ACROSS ASEAN COUNTRIES

Tue, 01 Sep 2026 00:00:00 GMT

This study investigates the effects of the digital economy on GDP growth in nine ASEAN countries from 2004 to 2023. The digital economy is measured using three commonly applied indicators: mobile technology penetration, fixed broadband subscriptions, and the share of the population using the Internet. Data were obtained from the World Bank’s World Development Indicators database and analysed using a dynamic panel model estimated through the System Generalized Method of Moments (System GMM). The findings demonstrate that the digital economy has a positive and statistically significant influence on GDP growth across ASEAN countries, although the magnitude of this effect differs among the selected indicators. The proportion of Internet users represents the most influential channel through which digitalisation contributes to economic growth, followed by mobile technology penetration. By contrast, the impact of fixed broadband subscriptions is comparatively limited. The results also show that government expenditure and trade openness make important contributions to economic growth, while the effects of capital investment and foreign direct investment depend on specific economic conditions. This study contributes to the literature by identifying the relative importance of different dimensions of the digital economy in promoting GDP growth in ASEAN. It also highlights that the productive and effective use of digital technologies is more important for economic performance than the mere availability of digital infrastructure.

EFFECTIVENESS OF FISCAL POLICY USING DOUBLE MACHINE LEARNING: GCC AND HIGH-INCOME ECONOMIES

Tue, 01 Sep 2026 00:00:00 GMT

This study examines the causal effects of fiscal policy on macroeconomic stability and non-oil GDP growth in hydrocarbon-dependent GCC countries and diversified high-income economies. Using a balanced panel of 17 countries from 2000 to 2024, comprising 425 country-year observations, it applies Double Machine Learning to address endogeneity, nonlinearities, and high-dimensional confounding. The analysis focuses on fiscal balance, government expenditure, and tax revenue as shares of GDP, while controlling for institutional and structural factors such as fiscal transparency, sovereign wealth fund governance, public investment efficiency, and economic complexity. The model combines Lasso, Random Forest, and Gradient Boosting with cross-fitting, instrumental-variable checks, fixed-effects OLS, mediation analysis, and heterogeneity tests. The results show significant positive effects of fiscal balance (0.052), government expenditure (0.038), and tax revenue (0.033) on GDP growth (p < 0.01). These effects are partly mediated by public investment efficiency and financial development and are stronger in diversified economies with better institutions. The findings suggest that GCC countries can improve fiscal policy effectiveness through institutional reform and economic diversification.

THE DIGITAL ECONOMY AND THE ENGAGEMENT CRISIS: UNIVERSITY DROPOUT IN THE ERA OF DIGITAL TRANSFORMATION

Tue, 01 Sep 2026 00:00:00 GMT

This article examines the complexity of university dropout in the context of digital transformation and growing labor market uncertainty associated with the rapid development of artificial intelligence. Designed as a conceptual and methodological contribution rather than an empirical study, it evaluates the diagnostic potential of institutional information systems, using the CloudA platform as an illustrative case, and proposes methodological improvements intended to support student retention. The first part reviews established theoretical models of student dropout and considers their relevance to the contemporary use of learning analytics. The central contribution of the article is an original classification of direct indicators available within institutional information systems, organized into academic, behavioral, and institutional dimensions. The paper also proposes composite indicators, including the Moment of Trouble and Financial Risk scales, which are intended to transform transactional data into measurable early warning signals. These indicators remain conceptual and require future empirical validation. The discussion identifies important limitations in the capacity of institutional information systems to capture psychosocial factors. It therefore emphasizes the need to combine data-based analysis with human-centered institutional support. The effectiveness of dropout prevention is likely to depend not only on the accuracy of analytical indicators, but also on the speed, appropriateness, and quality of the institutional response to the risks identified.

CONDITIONAL CONVERGENCE OF GDP PER CAPITA ACROSS VIETNAMESE PROVINCES: A SYSTEM GMM APPROACH

Tue, 01 Sep 2026 00:00:00 GMT

Achieving long-term and sustainable economic development in developing countries requires overcoming the middle-income trap. This challenge is particularly important for transition economies seeking to promote balanced development across regions. This study applies the System Generalized Method of Moments (SYS-GMM) estimator to examine income convergence across Vietnam’s 63 provinces and centrally governed cities. The empirical results provide no statistically significant evidence of absolute convergence among the examined localities. However, strong evidence of conditional convergence is identified. The estimated annual rate of conditional convergence is 3.08%, indicating that approximately 22.53 years would be required for provinces and cities to reduce by half the gap between their current income levels and their respective steady-state equilibria. The findings further suggest that accelerating economic growth requires substantial progress in industrial development. Nevertheless, such development should be aligned with Vietnam’s long-term Net Zero commitments and accompanied by effective population policies, as higher population growth is found to have a negative effect on per capita economic growth.

REGIONAL GROWTH AND ENVIRONMENTAL POLICY IN KAZAKHSTAN’S CIRCULAR ECONOMY TRANSITION

Tue, 01 Sep 2026 00:00:00 GMT

This study examines the determinants of regional economic performance in Kazakhstan in the context of its transition toward a circular economy. It focuses on the combined effects of environmental protection expenditure, small and medium-sized enterprise activity, and fixed capital investment. Using panel data for 16 regions from 2005 to 2024, the study applies two-way fixed effects models and a dynamic panel approach based on the Anderson-Hsiao estimator to account for growth persistence and potential endogeneity. The results show that the growth effects of environmental expenditure, SME activity, and fixed capital investment vary across model specifications. Environmental protection expenditure is positively associated with regional growth in static models, but this effect becomes insignificant once endogeneity is addressed. SME activity shows a negative association in static specifications, but a positive effect in dynamic IV estimates. Fixed capital investment is positively significant in static models, although its effect weakens in dynamic specifications. Overall, the findings suggest that institutional quality, regional heterogeneity, and policy coordination shape the economic outcomes of sustainability-oriented policies. By integrating environmental, entrepreneurial, and investment-related factors within a single empirical framework, the study offers new evidence on the context-dependent nature of regional growth in a transition economy and provides policy insights for designing regionally differentiated development strategies.

AUGMENTED DECISION-MAKING IN VENTURE CAPITAL: INTEGRATING DIGITAL TWINS AND AI-BASED MARKET INTELLIGENCE

Tue, 01 Sep 2026 00:00:00 GMT

Venture capital decision-making is increasingly influenced by uncertainty, information asymmetry, and the growing volume of unstructured data. Although previous research has advanced analytical methods for portfolio selection, existing approaches rarely integrate dynamic system behaviour with qualitative market intelligence within a unified framework. This study proposes an AI-augmented decision framework that combines digital twins with large language model-based market intelligence to support venture capital investment under uncertainty. The framework integrates structured financial data with real-time qualitative insights from market narratives, while digital twins simulate startup development and scenario-based performance. Embedded within a multi-criteria decision structure, these inputs enable more adaptive, transparent, and interpretable portfolio selection. Empirical findings indicate that the proposed framework improves decision quality by increasing expected returns while reducing risk and prediction error. It also strengthens decision stability and supports more effective evaluation of trade-offs in complex investment environments. The study contributes to the literature on AI-enabled decision-making and innovation finance by demonstrating how emerging technologies can improve investment evaluation and reduce uncertainty in entrepreneurial ecosystems.

WATER STRESS, AGRICULTURAL DEPENDENCE, AND TECHNOLOGICAL RESPONSES IN THE MENA REGION: EVIDENCE FROM A LONG-RUN PANEL ANALYSIS (1990-2024)

Tue, 01 Sep 2026 00:00:00 GMT

Water scarcity has become one of the most serious structural constraints on development in the Middle East and North Africa, or MENA. Despite substantial investment in supply-side technologies, including groundwater development, irrigation modernization, desalination, and wastewater reuse, regional water stress remains persistently high. This study examines whether these technological responses reduce water stress or whether their effects are offset by agricultural dependence and rebound dynamics. Using a balanced macro panel of ten MENA countries from 1990 to 2024, we estimate several econometric specifications and conduct robustness checks. Agricultural water dependence is consistently associated with greater water stress, whereas the relationship between technology and stress varies across specifications. It is negative in pooled models but positive after controlling for country heterogeneity. Combined with evidence of bidirectional Granger causality, these results suggest that infrastructure expansion often responds to existing scarcity rather than resolving it. Sustainable water security therefore requires not only technological innovation but also institutional reform, demand management, and agricultural transition.

ACCOUNTING MODELS FOR RECOGNITION AND MEASUREMENT OF HERITAGE ASSETS IN FINANCIAL STATEMENTS OF PUBLIC SECTOR ENTITIES

Tue, 01 Sep 2026 00:00:00 GMT

This study aims to develop accounting models for the initial recognition and measurement of tangible cultural heritage in the financial statements of public sector entities. The proposed models are based on a comprehensive theoretical and methodological review of the existing literature, supported by an analysis of international accounting practices. Their implications are considered in the context of sustainable public sector development and adaptation to the evolving global economic environment.The study argues that Bulgaria lacks a modern accounting framework for the recognition, measurement, and disclosure of tangible cultural heritage that is aligned with the Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities and the requirements of the International Public Sector Accounting Standards (IPSAS). To address this gap, a two-component accounting model for tangible cultural heritage is proposed.The research applies systemic, historical, and logical approaches, together with observation, comparative analysis, and analogy. It evaluates the Conceptual Framework and IPSAS requirements related to heritage asset accounting and examines current accounting practices in Bulgaria to assess their consistency with internationally accepted standards.

FINANCIAL INCLUSION AND INCOME INEQUALITY: THE CONDITIONAL ROLE OF CONTROL OF CORRUPTION

Tue, 01 Sep 2026 00:00:00 GMT

This study examines whether the effect of financial inclusion on income inequality depends on institutional quality. Specifically, it tests whether control of corruption moderates the relationship between financial inclusion and income inequality. Using panel data for 15 emerging Asian economies from 2008 to 2022 and applying the System Generalized Method of Moments estimator, the results show that financial inclusion has no significant direct effect on inequality. Its distributional effect, however, depends strongly on control of corruption. Financial inclusion reduces inequality only in countries with sufficiently strong institutions, with the effect emerging once the control of corruption index exceeds approximately 0.23. The analysis also identifies an inverted U-shaped relationship, whereby inequality begins to decline only after the financial inclusion index surpasses approximately 0.72. The findings indicate that institutional reform and effective control of corruption are essential for financial inclusion to reduce income inequality.

GLOBAL VALUE CHAIN EXPOSURE AND GROWTH VULNERABILITY: EVIDENCE FROM G20 ECONOMIES

Tue, 01 Sep 2026 00:00:00 GMT

The reconfiguration of global supply chains has renewed debate on the macroeconomic implications of global value chain (GVC) integration. This study examines the relationship between GVC exposure and growth volatility in G20 economies from 1995 to 2023. Macroeconomic vulnerability is measured by the rolling standard deviation of real GDP growth, while GVC exposure is proxied by the foreign value-added content of exports. Trade openness is included to distinguish the effects of supply chain integration from broader international trade exposure. Using a fixed-effects panel model with country and time effects, the analysis controls for structural differences and common global shocks. The findings suggest that GVC integration and trade openness primarily transmit external shocks rather than independently generate macroeconomic instability. The results underscore the importance of supply chain diversification, domestic productive capacity, and credible stabilization policies in strengthening economic resilience.

THE IMPACT OF GREEN FINANCE AND TECHNOLOGICAL INNOVATION ON SUSTAINABLE GROWTH: THE MODERATING ROLE OF INSTITUTIONAL QUALITY

Tue, 01 Sep 2026 00:00:00 GMT

In the context of climate change and the growing need for sustainable development, green finance and technological innovation have become important instruments for achieving economic growth while ensuring environmental protection. This study investigates the effects of green finance and technological innovation on sustainable growth in 86 countries, including 40 developed and 46 developing countries, over the period 2010 to 2024. The study applies pooled ordinary least squares regression, fixed effects models, random effects models and generalized method of moments estimation to address endogeneity and the dynamic characteristics of panel data. The empirical findings indicate that green finance may have a negative short-term effect on sustainable growth, whereas technological innovation contributes positively to sustainable growth, particularly in developing countries. Institutional quality is also identified as a key condition that enhances the effectiveness of green finance and technological innovation in promoting sustainable growth. The results suggest that countries should strengthen institutional quality, improve the efficiency of resource allocation and support technological innovation to maximize the benefits of green finance in the transition toward sustainable growth.

PUBLIC-SECTOR DIGITALISATION AND ECONOMIC GROWTH IN THE EU: THE ROLE OF E-GOVERNMENT USE AND DIGITAL GOVERNMENT CAPACITY

Tue, 01 Sep 2026 00:00:00 GMT

This study investigates whether public-sector digitalisation is associated with real GDP per capita growth in the EU-27 and whether this relationship depends on time dynamics and governance quality. The analysis combines two measures of digital government development: a behavioural indicator capturing the share of individuals interacting online with public authorities (Eurostat), with adjustments for the 2021-2022 series break, and the Public-Sector Digital Capacity Index (PSDCI), developed from the eGovernment Benchmark dimensions for a shorter panel. The empirical strategy applies two-way fixed-effects models with country and year effects, including lagged specifications, an interaction between digitalisation and Government Effectiveness (WGI), and robustness checks using Driscoll-Kraay standard errors and placebo lead tests. The findings show no statistically significant average contemporaneous relationship between e-government use and economic growth. PSDCI estimates are positive but remain statistically uncertain due to the limited time dimension. However, when lagged effects and institutional conditions are considered, a relationship between digitalisation and growth becomes evident, particularly at lower levels of governance effectiveness. The results suggest that public-sector digitalisation does not automatically translate into higher economic growth. Its contribution depends on the timing of effects, the measurement approach, and the institutional environment in which digital reforms are implemented. These findings highlight the importance of considering governance capacity and dynamic effects when evaluating the economic impact of digital government transformation.

ECOSYSTEM AND HUMAN-CENTRIC HRM IN KAZAKHSTAN’S CIVIL SERVICE

Tue, 01 Sep 2026 00:00:00 GMT

Human-centric and ecosystem-based approaches to human resource management (HRM) have gained increasing attention in public administration reform, particularly in transitional states. However, large-scale empirical evidence remains limited, especially in Central Asia. This study investigates the individual and institutional determinants of perceived HRM quality in Kazakhstan’s civil service and examines why the adoption of artificial intelligence (AI) remains constrained. Using a nationally representative survey of 12,562 civil servants conducted in June 2025, the analysis employs ordinary least squares regression with heteroskedasticity-robust standard errors and binary logistic regression. The findings show that perceived HRM quality is driven primarily by access to education and training, public service motivation (patriotism), and participation in innovative projects, with the model explaining 39.8% of the variance. In contrast, AI adoption is influenced more by organisational position and institutional access than by individual motivation. Managers are substantially more likely to use AI tools, whereas women and longer-tenured civil servants exhibit lower adoption rates. Notably, 44% of respondents report wanting to use AI but lacking access, pointing to a significant implementation gap. The study makes three principal contributions. First, it provides the first large-scale empirical assessment of the ecosystem-based and human-centric HRM framework in a post-Soviet context. Second, it demonstrates that the AI adoption gap is primarily structural rather than motivational. Third, it translates these empirical findings into actionable policy recommendations. The results suggest that narrowing the AI aspiration gap and creating more transparent and accessible career pathways should constitute key priorities for civil service reform, requiring coordinated system-level interventions rather than isolated organisational initiatives.

WHEN DOES GOVERNMENT EDUCATION EXPENDITURE YIELD QUALITY GAINS? A NONLINEAR ANALYSIS OF FISCAL EFFECTIVENESS ACROSS ASIA

Sun, 31 May 2026 00:00:00 GMT

Across Asia, this study looks at how public spending on education impacts the quality of schools and considers the possibility that there may be a point at which extra expenditure will no longer improve standards. Using a dataset from 36 Asian countries for the year 2023, we applied a spline regression model to explore how education spending by governments (expressed as a percentage of GDP), the budget allocation to education, school duration and total pupil enrolment affected educational standards. This variation can be attributed to 86.8% by the model specifications. Across all segments of the cubic function, we found that the budgetary priorities and duration of schooling have a positive and statistically significant effect on educational standards. Total school intake was not found to be significant. Below a certain GDP level, fiscal policy’s marginal effect on the economy is very weak but beyond a certain threshold, such effects become quite significant. It appears that the fiscal situation in a country may mean that the way government funds for education is allocated could be more important than the amount of money available for education, at least in certain cases. From the viewpoint of public finance, the data obtained here highlights the need to consider expenditure efficiency, as well as the proper alignment of institutions, along with budgeting that is informed by results, in any moves to increase funding allocations.

THE IMPACT OF DIGITALIZATION AND INNOVATION ON POSTAL AND COURIER SERVICES IN THE CONTEXT OF SUSTAINABLE ECONOMIC DEVELOPMENT: EVIDENCE FROM KAZAKHSTAN

Sun, 31 May 2026 00:00:00 GMT

The processes of digitalisation and innovation are also reshaping the postal and courier services sector. Physical mail generally requires more time to access than electronic information. Even so, this remains an important service sector that should not be overlooked. The pandemic further increased demand for postal and courier services. This study examines the factors affecting the sector in the country, the ways in which it can adapt to ongoing change, and how, within the context of technological development, it can secure its role in sustainable national development. For the purposes of detailed analysis, two nonlinear autoregressive distributed lag models were developed, and the required significance tests were performed. The results of the first NARDL model show that fixed broadband subscriptions, employment in services, and ICT service exports have a positive long run effect on the volume of postal and courier services, while service imports exert a positive short run effect. The findings of the second NARDL model indicate that GDP per capita has a positive impact on the volume of postal and courier services in both the short run and the long run, while the level of innovation activity has a favourable long run effect. Several policy recommendations are presented in the conclusion.