What is the Role of Social Capital in the Innovation Creation Process? Evidence from the European Union

Abstract

This study empirically analyzes whether social capital has any role in shaping the innovation creation process in 25 members of the European Union over the period 2013-2021. In this context, the innovation model is constructed utilizing balanced panel data and hierarchically estimated with the Poisson Pseudo Maximum Likelihood (PPML) method which is the most appropriate method since the model includes some negative values and count data. The finding strongly supports the encouraging effect of social capital on innovation since it is statistically significant and positive in all model specifications. Besides, the innovation creation process is positively associated with human development, research and development expenditure, population, government effectiveness, and income per capita. When comparatively evaluated estimation results, human development, and social capital lead to forth in terms of contributing more innovation creation process.  As a core result of the study, social capital may be considered the workhorse for the innovation creation process since it promotes better coordination of activities through improved interpersonal interactions, increased community trust, and vision-sharing, leading to increased market efficiency and decreased costs. Therefore, it is recommended that these countries develop strategies to enhance their social capital and implement policies to increase especially in bridging and linking social capital, which generates a competitive advantage over their rivals.