The Western Balkan region, despite achieving evident economic progress, is still significantly less developed compared to European average, in terms of per capita income and labour productivity and lags behind developed Europe in the intensity of research and innovation activities, but also in the quality of education and quantitative educational outcomes. Aim of this study is to investigate impact of lower research and innovation potentials to the economic growth of Balkan countries. In order to examine the causal relationship between GDP and variables which define the level of innovation development, the Granger-causality test based on the estimation of VECM and VAR models was performed on the panel data sample of 36 European economies and time frame from 2014 to 2019 (annual data). The results show that relationship between GDP and employment in knowledge intensive sectors do exist, but in only one direction. Changes in employment in knowledge intensive sector will have impact on the change of GDP value, but the GDP change will not have significant impact on the value of the number of people employed in the knowledge intensive sector. Relationship between GDP and R&D expenditure in the business sector is present in both directions. Relationship between GDP and R&D expenditure in the public sector indicate obvious relationship between those two indicators also. Relationship between employment in knowledge intensive sectors and R&D expenditure in the business sector indicate strong relationship between those two indicators in both directions. Relationship between employment in knowledge intensive sectors and R&D expenditure in the public sector, according to the results, identifies the impact in only one directions. It has been showed that the changes in the R&D expenditure in the public sector will impact the change in the number of employees in knowledge intensive sectors. Relationship between R&D expenditure in the business sector and R&D expenditure in the public sector does not exist. The study shows that relationship between GDP and tertiary education is not identified either. This raises the importance of the quality of education.