The application of a panel PLS-SEM model to determine the relationship between the institutional factors and the innovativeness of EU economies

The ability of domestic enterprises to invent, introduce and diffuse innovations has been a driving force of the development of modern economies. This paper focuses on the institutional determinants of innovativeness of European Union economies. Institutions are defined as a universal, relatively persistent set of social norms rooted in society, shaping both human behaviour and all relations in the economy. The institutional factors seem to be especially significant nowadays, in an era dominated by the open innovation model. The aim of the study discussed in the article is to measure the quality of institutions and the level of innovativeness of EU economies (26 EU economies, excluding Greece due to data deficiency) and to identify the relationship between these directly unobservable categories. The research applies the partial least squares structural equation modelling (PLS-SEM) method. On the basis of data for the years 2010 and 2020 extracted from Eurostat, Freedom House, the Fraser Institute, the Heritage Foundation and the Legatum Institute, a panel PLS-SEM model was constructed and an empirical analysis was performed. The latter demonstrates that the correlation between the quality of institutions and the level of innovativeness of EU economies was positive, strong and statistically significant both in 2010 and in 2020. Taking into account the theoretical aspects and the results of research of other scientists, this relationship might be considered not only as correlational, but also as causal.