Over the past couple of months, I have attempted to assess the role of a few major socio-economic factors on the national innovation potential. To do that, I ran a series of simple regression tests to estimate the correlation between these factors (as measured by appropriate indexes) and the 2019 Global Innovation Index, a database that analyzes global innovation performance of approximately 130 economies.

First, I analyzed to which extent the ability of a country to innovate correlates with the level of political freedoms. Second, I looked at a possible role of the country’s prosperity and education spending.

The above findings can be summarized as follows:

1. There is a strong correlation (R²=0.46) between a country’s innovation potential and the level of democratic development (as assessed by the Democracy Index 2019).
2. This correlation is only valid for democratic countries (R²=0.45) but is absent in the case of non-democracies (both groups defined per Democracy Index 2019).
3. Although all five individual components of the Democracy Index positively correlate with innovation, the strongest correlation occurs for Functioning of Government (R²=0.53).
4. Poor correlation (R²=0.14) was observed between a country’s innovation rankings and its nominal GDP.
5. This correlation was strong, however, when GDP per capita was analyzed instead (R²=0.54).
6. A very solid correlation (R²=0.68) exists between innovation and what a country spends on Research and Development (R&D) expressed as the percentage of the nation’s GDP.
7. Somewhat surprisingly, a poor correlation (R²=0.17) was observed between the Innovation Index and a country’s expenses on education expressed as the percentage of the national GDP. However, I have some concerns about the quality of the education expenses data that I used.

One might argue that political freedoms and democracy affect innovation only indirectly, via the country’s prosperity and R&D spending. The argument would go like this: the freer the country, the more prosperous it is (as measured by the country’s GDP per capita); the more prosperous the country, the more it spends on R&D; and the more it spends on R&D, the more innovative it is.

A more sophisticated statistical analysis is needed to see whether this argument is valid or not.

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