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

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.