The authors would like to thank Reinhard Felke, Alessio Terzi and Alessandro Turrini for helpful comments. Any remaining errors are the sole responsibility of the authors.
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However, the impact of a pandemic on the trust of citizens in their governments is likely to be a more complex issue, see Aksoy et al. (2020).
Hungary showed a rather different development, rapidly moving away from the curve for the EU but this was dominantly related to the national policies (introducing a flat personal income tax (PIT) and reforming the social support system), not the design of the financial assistance program. Nevertheless, despite major and widely debated issues surrounding the new approach, the resumption of rapid growth brought Hungary back to the European curve by 2019.
Japan, the other major global innovator outside the US, suffered a similar, perhaps even bigger loss in its share in the US patents.
Most of the EU11 countries converged fast, but they are so small as innovators globally that their outstanding performance changed little in the overall trend for the EU as a whole. Recent research (Buti - Messori 2021) suggests that the trend of Asia getting ahead of the EU has continued, particularly in the area of ICT technologies.
The recently approved recovery and resilience plan for Italy demonstrates this point well (European Commission 2021). It contains a large number of major reforms previously identified in the European Semester as crucial for improving public and private institutions and enhancing the growth potential of the country.
These charts show a correlation. Causality may well run in both directions, and there may be common causes driving both factors (quality of institution and innovation). Nevertheless, if institutional quality in a country deteriorates, like in the Southern European EU member states (Székely – Kuenzel 2021), this chart suggests that it is unlikely that such a country will be able to attract knowledge-based and innovation-driven activities and firms.
The figure suggests that the nature of the relationship between the quality of institutions and the relative size of research and development in an economy is turning highly nonlinear as countries move towards knowledge-based, innovation-driven activities. This may well reflect the increasing importance of allocative efficiency as an economy approaches the frontier of economic development (Acemoglu et al. 2006). Many EU countries in Western and Northern Europe belong to this group, and several others in Southern and CEE have or are about to enter the transition towards this phase of development.