Government and business R&D effects on innovation and productivity in high- and low-income EU countries

This paper examines how government- and business-financed R&D shape economic and innovation outcomes in the European Union. Using a panel for 27 coun­tries over 2013–2022, we estimate Arellano–Bond GMM, fixed-effects with Driscoll–Kraay standard errors and common-correlated-effects pooled (CCEP) regressions. Countries are grouped by income level, EU-15 versus EU-13 membership and institutional quality. The dependent variables include labour productivity, inward and outward FDI, broadband access and patent applications; the key regressors are per-capita government, business and total GERD. In high-income economies, public R&D is more consistently associated over medium-run horizons with broadband rollout and patenting, whereas in lower-in­come countries business and total R&D display stronger associations with productivity and FDI. Most significant effects emerge at three- to six-year lags, consistent with ad­justment and diffusion processes. The results reveal substantial heterogeneity driven not only by income levels but also by the sectoral composition of R&D financing and the timing of adjustment effects. The strongest cross-estimator consistency emerges for broadband access, where the positive association with R&D is confirmed by all three estimators. These sector-specific transmission channels are mapped onto EU policy in­struments, including smart specialisation strategies, the Recovery and Resilience Facility and Digital Decade targets. First published online 21 September 2026