Effects of Regulatory Quality and Political Stability on Sustainable Competitiveness in the EU: The Mediating Role of Environmental Innovations

Abstract

With rising environmental challenges, the role of policymakers in promoting eco-innovation has become increasingly critical. This study examines how political stability and regulatory quality influence environmental innovation and sustainable competitiveness in the European Union. Using Partial Least Squares Structural Equation Modeling (PLS-SEM) on panel data from 27 EU countries (2017–2022), the study investigates both direct and indirect effects of governance quality. The findings indicate that political stability and regulatory quality significantly enhance eco-innovation, which mediates their impact on sustainable competitiveness. A stable and predictable regulatory environment reduces uncertainty, supports investment in green technologies, and fosters private sector engagement in sustainability initiatives. These results highlight the strategic role of governance in enabling eco-innovation and advancing sustainable economic growth. The study offers practical insights for policymakers seeking to strengthen governance mechanisms—such as regulatory predictability and mission-oriented innovation policies—to create favorable conditions for eco-innovation and long-term competitiveness.