In my previous post, I further explored the notion that the ability of a country to innovate correlates with the level of political freedoms in this country.

In particular, I showed that no such correlation exists for non-democratic countries (as defined by the Democracy Index 2019 composed by the Economist Intelligence Unit). It appears that a “threshold” exists below which no improvements in democratic development would lead to more innovative economies.

In contrast, a reasonably strong correlation was observed for democratic countries (with a plateau seen for the most democratic). Further analysis suggested an important role of government in promoting national innovation programs.

Before exploring this “government” connection in more detail, I wanted to check other, seemingly more trivial, factors that could affect a country’s ability to innovate.

One of such factors is money. Innovation costs money, so more prosperous countries should theoretically be more innovative. To test this simple idea, I plotted the countries’ innovation rankings from the 12^th (2019) edition of the Global Innovation Index against their nominal GDP (as per World Bank, 2018). Poor correlation was observed (R²=0.14).

This correlation was evident, however, when instead of nominal GDP, GDP per capita, which is considered a bona fide measure of a country’s prosperity, was used. The results are presented below:

One can see that the correlation between a country’s Innovation Index and GDP per capita is especially strong up to approximately $60,000; a plateau seems to be formed after that. There are also two outliers with the GDP per capita exceeding $120,000: Luxemburg ($123,892) and Qatar ($126,898). With these two countries excluded, the correlation becomes even stronger (R²=0.68).

Perhaps, the best way to see how money affects innovation at the country level is to look at how much this country spends on Research and Development (R&D). To do that, I plotted the Innovation index against the national R&D spending expressed as the percentage of the nation’s GDP (as per World Bank). The results of this comparison are presented below:

A solid correlation is indeed seen. This correlation seems to be especially strong until R&D spending does not exceed 2% of the country’s GDP; a plateau seems to be forming after that – which intuitively makes sense.

Finally, I decided to see how the country’s expenses on education may affect its innovation abilities. To do that, I plotted the Innovation Index against the country’s educational expenses expressed as the percentage of the nation’s GDP (as per World Bank). Somewhat surprisingly, a poor correlation between the two parameters was observed:

There is a problem with the education expenses data that I used: many data points are not current, so data for different years were often used to compare countries (although I didn’t use the data points collected prior to 2014). I do not know to which extent this may or may not affect the quality of the comparison.

Regardless, the lack of a strong correlation between the country’s Innovation Index and its spending on education looks surprising. Whether it reflects the fact the relationship between education spending and its quality is complex – or that some additional, more subtle factors play a role in innovation – needs further investigation.

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 Image credit: Micheile Henderson (Unsplash)