Innovation sustainability nexus in the European circular and green transition

Europe’s transition toward a circular and climate-neutral economy increasingly depends on interactions between innovation effort, resource efficiency, energy systems, and environmental pressures. This study examines how national research and development intensity is associated with sustainability-related economic and environmental conditions across 27 European Union member states during 2000–2023. A balanced Eurostat panel comprising 648 country-year observations links gross domestic expenditure on research and development as a percentage of GDP (GRDERD) with household final energy consumption per capita, energy productivity, resource productivity, real GDP per capita, and municipal waste generation. Empirical analysis combines correlation-based evidence with panel diagnostics, fixed- and random-effects specifications, and two-way fixed-effects estimation with Driscoll-Kraay standard errors to accommodate country heterogeneity, common time shocks, serial dependence, and cross-sectional dependence. Results reveal substantial differences between pooled cross-country associations and within-country relationships identified after controlling for country and year effects. Resource productivity retains a positive and statistically significant association with R&D intensity (B = 0.168; β = 0.190; p = 0.003), whereas energy productivity exhibits a significant negative conditional association (B = − 0.052; β = − 0.194; p < 0.001). Household energy consumption remains positively associated with R&D intensity only at the 10% significance level, while real GDP per capita and municipal waste generation do not retain statistically significant associations in the preferred specification. Robustness analysis further shows that the negative RGDP coefficient obtained from pooled estimation is specification-sensitive and should not be interpreted as an independent income effect. Findings therefore indicate that relationships between innovation effort and sustainability conditions are more heterogeneous than suggested by pooled estimates and are particularly sensitive to persistent country characteristics and common temporal dynamics. Policy implications emphasize coordinated innovation, resource-efficiency, social-equity, and governance strategies rather than treating R&D expenditure as an isolated causal driver of green-transition outcomes. Results provide a macro-level basis for identifying conditions associated with national innovation intensity while avoiding causal or firm-level ESG interpretations unsupported by the empirical design.