The Role of R&D Intensity and Education in a Model of Inequality, Growth and Risk of Poverty: Evidence from Europe

Reducing inequality and risk of poverty has become a global challenge for sustainable development and improving quality of life because economic growth has not translated into inequality and risk of poverty alleviation. Therefore, the extent to which inequality, economic growth and risk of poverty interact has been a serious concern. However, previous studies have failed to incorporate the effects of R&D and education into the model of inequality, growth and risk of poverty. The purpose of this study was to contribute to the understanding of the role of R&D and education in the model by examining the dynamics of causal relationships. Consideration was given to heterogeneity and cross-sectional dependence across European Union countries over the period 2000 to 2018. Our findings provide evidence for the central importance of R&D intensity and education level in the model of inequality, growth and risk of poverty. Notably, our results argue for the feedback hypothesis between economic growth and R&D intensity for both old and new EU country samples. In addition, our results revealed the bidirectional favourable effect between R&D and inequality for old EU countries, while the adverse effect of R&D on risk of poverty was observed for new EU countries, implying that national and EU-wide policies for research and innovation should shift from an orientation towards economic growth to one towards societal challenges.