Innovation, Energy Transition, and Sustainable Economic Development in the European Union: Evidence from a System GMM Approach

Abstract

The economic dimension of sustainable development has become a central objective of European policies aimed at balancing economic prosperity, social inclusion, and environmental sustainability. This study investigates the contribution of innovation and energy transition to the economic dimension of sustainable development in the European Union. Using a balanced panel dataset covering the 27 European Union Member States over the period 2010–2024, the effects of research and development expenditure, employment rate, energy productivity, and renewable energy share on GDP per capita, employed as a proxy for the economic dimension of sustainable development, are analysed using a two-step System Generalized Method of Moments (System GMM) estimator. The results indicate that employment and energy productivity have positive and statistically significant effects, whereas research and development expenditure and renewable energy share are not statistically significant. The findings suggest that labour market performance and efficient energy use contribute positively to the economic dimension of sustainable development, whereas the effects of innovation and renewable energy deployment may materialise only over longer time horizons. The study provides empirical evidence supporting integrated policies that strengthen economic competitiveness and long-term sustainability within the European Union.