Abstract:
Due to the Baltic States’ short history and small size, data availability limits macroeconomic studies of their innovation systems. This study provides first insights from a macroeconomic level on the functioning of the national innovation system of the Republic of Lithuania, spanning the years from 1995 until 2022. Using the knowledge production function approach, a regression analysis accounting for path dependencies has been implemented. Impact factors include, the number of researchers and government expenditures regarding R&D, the GDP, the absorptive capacity measured via students, digitalization approximated by the share of internet users, and FDI inflows as a proxy for economic integration and competition. The chosen approach indicates that Lithuania developed a Western-style innovation system, and respective policy lessons, scaled accordingly, can be introduced into Lithuanian policy. The results also indicate that Lithuania’s innovation system is primarily outward-oriented. The results stress the relevance of researchers and for government expenditures in R&D, as major components of the innovation system, digital literacy and programs aimed at increasing the number of university students. A positive effect of FDI on knowledge generation could not consistently be established, and multiple reasons are discussed. Finally, the innovation system is a relevant driver of economic growth in Lithuania.
