Abstract: This paper aims to analyze the role of research and development (R&D) in the production efficiency of European Union Member States. Utilizing Bayesian methods within a dynamic framework, the study jointly estimates production functions and efficiency for a sample of 27 countries over the 2000-2021 period. The findings reveal that human capital investment exhibits a higher output elasticity compared to physical capital investment. Additionally, the results indicate that inefficiencies persist due to escalating costs- both monetary and temporal- as inputs expand. Across the studied countries, an upward trend in R&D expenditure is associated with increasing technical efficiency levels, establishing a positive relationship between R&D spending and technical efficiency scores. Geographically, eastern and southern European regions exhibit lower average efficiency levels. These insights are crucial for policymakers seeking to foster innovation-driven policies, highlighting the importance of maintaining or increasing R&D spending to achieve the economic and social objectives of the European Union. Through appropriate R&D policies, policymakers can enhance technical efficiency, ensure the EU's global competitiveness, and promote more equitable development across the Union.

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