The article explores the relationship between innovations and services in transition economies - i.e. new EU Member States, focusing on Slovenia. We first present a conceptual framework for defining innovation in services and different dimensions of innovation in services that transcend the boundaries of sectoral definition. The central part of the article deals with the deficient understanding of innovation in services in transition economies/Slovenia. Using CIS3 and CIS4 innovation survey data, we analyse the intensity of innovative activity in Slovenia compared to the EU and examine differences in innovative activity in services and manufacturing. Further, we identify key general and service-specific barriers to innovation in services, particularly those that are characteristic for transition economies. Based on an overview of the present status of innovation in services and analysis of barriers to innovation in services in Slovenia/ transition economies, we propose in conclusion some basic guidelines for policies towards encouraging innovation in services that could contribute to decreasing the lag of transition economies behind developed countries.
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