Objective: The aim of this paper is to analyse the role of innovation in competitive-ness development and to identify the most competitive European economies. From the perspective of contemporary challenges, the following research question will be considered: How innovations determine development of the most competitive Eu-ropean economies?

Research Design & Methods: Besides employing critical literature analysis, the re-search methods based on quantitative synthesis will also be used. Interpretations are developed through an in-depth comprehensive review of different studies and secondary data analysis.

Findings: The results provide valuable insights into how innovations determine de-velopment of the most competitive European economies. Measuring competitive-ness relies on taking into account both supply-side and demand-side indicators. Based on the GCI both the demand-side as well as the supply-side innovation indi-cators were identified.

Contribution & Value Added: The novelty of the study consists, on the one hand, in developing the conceptual framework for innovative competitiveness that contributes to the shaping of socioeconomic transitions and, on the other hand, in determining the innovation-driven factors of the most competitive European countries