The Role of Economic Performance and Resource Efficiency in European Sustainable Business

This study examines the structural dimensions associated with research and development investment across European Union countries through an integrated econometric framework encompassing economic performance, efficiency dynamics, environmental pressures, policy orientation, and digital transformation. Moving beyond single-indicator approaches, the analysis constructs composite indices reflecting structural innovation capacity, resource and energy efficiency, green transition pressures, fiscal and policy orientation, and digital business transformation. Using panel data for EU Member States over the period 2013-2023, the empirical strategy combines hierarchical pooled regression with country fixed-effects and two-way fixed-effects models using Driscoll-Kraay standard errors, thereby accounting for unobserved country heterogeneity, common year effects, and cross-sectional dependence. Pooled estimates show strong positive associations of structural innovation capacity and green transition pressures with BERD across variation that combines between-country differences and within-country changes. These relationships differ when estimation is based on within-country variation and when common year effects are incorporated. In the two-way fixed-effects specification with Driscoll-Kraay inference, resource and energy efficiency and green transition pressures are positively associated with BERD, whereas digital business transformation is negatively associated with BERD; structural innovation capacity and fiscal-policy orientation are not statistically significant. These results distinguish relationships observed across pooled country-year variation from those identified through within-country changes and show that some coefficient patterns differ further after common year effects are incorporated. By providing a multidimensional perspective on the structural dimensions associated with business R&D intensity, the study contributes to the literature on sustainable innovation and provides policy-relevant evidence on the distinct roles of structural conditions, efficiency dynamics, environmental pressures, and digital transformation.