The Relationship Between Innovation, Foreign Direct Investment and Economic Growth in the Selected EU and EU Candidate Countries

The aim of this paper is to investigate the cause and effect relationship between economic growth, innovation (R&D expenditure) and foreign direct investment (FDI) for the selected EU members (Bulgaria, Croatia, Hungary, Romania, Slovakia, and Slovenia) and EU candidates (North Macedonia, Serbia, and Turkey) for the period 2000 - 2017. Additionally, we analysed innovation by using Summary innovation index, Capacity innovation index, and Global innovation index. All three indexes show that Slovenia is best ranked by innovation. According to Summary innovation index countries such as Bulgaria, Romania and North Macedonia are “modest innovator” countries, while Slovenia, Slovakia, Hungary, Serbia, Turkey, and Croatia belong to “moderate innovator” group of countries. According to Capacity for innovation index, Serbia shows the lowest capacity for innovation, although a considerable growth of this index has been recorded since 2012. Global innovation index shows that Serbia and North Macedonia have the lowest values of this index. The results obtained by using Granger causality test reveal that a two-way relationship exists between economic growth and FDI, economic growth and innovation, and FDI and innovation