Human Capital, Knowledge and Innovation in the European Union: A Cross-Country Analysis

Innovation is a subject of great importance for economic growth in developed countries. Researchers throughout the world are studying innovation in great detail, trying to determine the different parameters that influence its levels. Institutions, industry, academia, and governments, along with factors such as R&D, funding, infrastructure, markets, and businesses, have all been identified as crucial to innovation. However, it is human capital that is the most important source of innovation. Not only is human capital the carrier of knowledge but, what is more, it promotes the creation of new knowledge, as well as the adoption of new knowledge. The purpose of this paper is to examine relationships between human capital, the stock of knowledge, and the level of innovation in the EU countries. Research into this kind of dependencies is extremely difficult since the phenomena involved in them are intangible and requires advanced methods from the field of multidimensional analysis. The first part of the paper presents theoretical assumptions about human capital, knowledge and innovative processes. Then, empirical studies are conducted into the construction and estimation of a model describing the relationships between human capital, knowledge, and the level of innovation. The research uses the method of soft modelling developed by Herman Wold. Soft modelling allows users to examine links between variables which are not directly observable (latent variables). The conducted research has demonstrated that human capital and knowledge were important factors of innovation of the EU countries. The obtained results also made it possible to create rankings of the examined countries according to the stock of human capital, the stock of knowledge, and the level of innovation.