Analysing national innovation capacity and its importance for competitiveness and growth

Abstract

This paper uses data from the OECD's Scientific and Technological database and the Global Competitiveness Report (GCR) to analyse the national innovation capacity of nineteen OECD countries over the time period 2001 to 2007. A total of three sub-indexes are constructed which rank the strength of the common innovation infrastructure, cluster specific environment and quality of linkages which exist within each of the countries. These sub-indexes form the basis of an overall index measuring countries' national innovation capacity. The results indicate that each of the three components considered are important in explaining the innovation output of the countries studied. Further to this, national innovation capacity is found to have a positive effect on GDP per capita and on a country's GCR ranking. However, national innovation capacity in 2001 is found to be negatively associated with the subsequent growth rate of GDP per capita. This counterintuitive result may arise due to determinants of growth other than innovation such as capital and labour accumulation.