Analysis of European competitiveness based on its innovative capacity and digitalization level

Abstract

The competitiveness of countries can be measured through their innovative capacity and the level of digitalization they have achieved. Technological advances have proven to be an engine of economic growth, promoting employment and sustainable development. In Europe, policies are being focused on investments to make this the “Digital Decade”. Against this backdrop, the aim of the study is to analyse the competitiveness of the 27 countries of the European Union by producing a synthetic indicator that includes factors relating to innovation (measured by the Global Innovation Index) and to digitalization (based on the Digital Economy and Society Index), which in turn yields an annual ranking of the analysed economies between 2017 and 2021. Furthermore, in a second stage of the analysis, three panel data models are estimated to determine how factors relating to economic, social and environmental development foster advances in technology and innovation. The multicriteria decision-making method Technique for Order Preference by Similarity to an Ideal Solution (TOPSIS) is applied to establish a ranking of EU members according to their level of digitalization and innovation, while the Prais-Winsten regression with Panel Corrected Standard Errors is used to obtain robust estimators. The results of the ranking indicate that the countries hold similar positions in the five years analysed, with Sweden leading the way throughout, which reflects its stable development in terms of digitalization and innovation. A digital and innovation gap can be seen between the top and bottom positions of the ranking, that is, between north-central and south-eastern Europe. Finally, the estimated models suggest that governments should promote wealth, employment, research and infrastructure investments in order to improve innovative and technological development in their countries.