Determinants of innovations and competitiveness in the European Union

The aim of this study. The aim of this study is to find, which source of competitiveness is more important in European Union nowadays.The results of the analysis. The article attempts to evaluate the sources of the EU competitiveness. This paper is organized as follows: there is a short literature review in the first part (how GDP growth is connected with competitiveness, how competitiveness is defined and how it can be measured). Basing on those acknowledgements, the hypothesis about the contribution of two pillars of competitiveness the innovations and general economic conditions was state. In the third part, an econometric test of this hypothesis was conducted, and finally the outcomes and limitations of this study were discussed in the conclusions.The central hypothesis of this study is that there are two main sources of competitiveness represented by the cost competitiveness and innovation (value added) competitiveness, with the latter being more important for the EU than the former. Competitiveness was defined as an ability to attract foreign investments and therefore to contribute to the GDP growth.Two approaches to competitiveness measurement were approved: general economic conditions approach and innovation approach. General economic conditions approach emphasizes ordinary economic variables such as price indicators, GDP growth and infrastructure. Innovation approach is trying to measure softer aspects of competition science, willing to innovate and to create high value added products. Thus, the competitiveness was measured by two different ways that was aimed to avoid multicolinearity of the model.As a result both approaches yield totally different results. Ingeneral economic conditions approach of the winner is typical for Eastern Europe with low prices and high growth prospects. Innovation approach yields much better results for western and especially northern Europe.Conclusions and directions of further researches. This study was not successful inasense of answering the question about importance of different aspects of competiveness in the EU. Weak dataset does not allow making strong conclusions. Collecting more data will be necessary for precise conclusions and further research. If there was a longer panel for at least 10 years available to the authors, it is very possible, that results would be better and would enable us to come to more solid conclusions. Nevertheless, it becomes apparent that general economic conditions approach that entitles the development of ordinary economic variables, such as price indicators, GDPgrowth or infrastructure, might have larger impact on competitiveness in the EU that the support of science, willingness to innovate and creation of higher value-added products. These results might be regarded by the EU institutions willing to support innovations and economic growth within the European Union.