Abstract
This article attempts to verify empirically the argument that innovation capabilities and research and development activities are important in explaining the discrepancies registered between the nations, in terms of competitiveness. In order to approach in an explicit manner the relation between innovation and competitiveness, it uses a panel of representative data, set for European countries, including the member states (EU-27). The findings show that innovative capabilities and R&D activities sustained mostly by the business enterprise sector are very important factors influencing the nations competitiveness. Furthermore, the results suggest that policy changes, targeting the improvement of the human capital and technological capabilities, are needed for the emergent economies in order to improve their economic performance and to converge faster towards meeting the European standards.