The Economics of Technology and Growth: Technological Innovation, Institutional Quality, and Economic Performance in Central and Eastern European Countries

This study examines the determinants of economic growth in eight Central and Eastern European (CEE) countries—Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, Slovakia, and Slovenia—by extending the traditional Solow growth framework with institutional quality and innovation capacity. Four heterogeneous panel models are estimated: the Pure Solow Model, Solow + Economic Freedom, Solow + R&D Capacity, and Solow + Economic Freedom + R&D Capacity. Considering cross-sectional dependence and slope heterogeneity across countries, the models are estimated using the Seemingly Unrelated Regression–Mean Group (SUR-MG) approach. In addition, the CCE-CADF panel cointegration test is employed to examine the existence of a long-run cointegration relationship among the variables. The findings indicate that capital accumulation remains significantly associated with productivity growth in the CEE economies. However, the extended models suggest that institutional quality and innovation capacity provide additional explanatory power beyond the traditional Solow framework. Economic Freedom has a positive and significant effect on economic performance, while R&D capacity contributes to long-term growth by supporting knowledge creation and technological development. The fully augmented model, incorporating both Economic Freedom and R&D capacity, provides the highest explanatory power, highlighting the complementary role of institutions and innovation in the growth process. Moreover, the post-2004 EU enlargement effect is positive and significant across all specifications, suggesting that European integration supported economic transformation through market integration, foreign investment, institutional reforms, and technology transfer. The results indicate that sustainable convergence in the CEE economies requires not only physical capital accumulation but also stronger institutions and enhanced innovation capabilities.