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:
- 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).
- 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).
- Although all five individual components of the Democracy Index positively correlate with innovation, the strongest correlation occurs for Functioning of Government (R2=0.53).
- Poor correlation (R2=0.14) was observed between a country’s innovation rankings and its nominal GDP.
- This correlation was strong, however, when GDP per capita was analyzed instead (R2=0.54).
- 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.
- 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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