The Impact of Innovation on Employment in Transition Economies: The Case of Kosovo

Abstract

This study investigates how innovation affects job creation at the firm level in an emerging economy that continues to struggle with high unemployment. The analysis uses data from the Kosovo Agency of Statistics (2010–2017) and shows a strong positive correlation between spending on research and development (R&D) and job growth. The IT sector exhibits a negative lagged effect, which may signal future automation trends. Small firms demonstrate a positive relationship between R&D and employment, indicating their ability to leverage innovation to generate jobs. This study further shows that most of the gains from innovations accrue to skilled workers, suggesting that investment in human capital facilitates the implementation of research projects, thus contributing to higher levels of job creation. This implies that investing in R&D to develop skills and foster innovation can promote employment growth and boost Kosovo’s economy.