Innovation Capacities in Advanced Economies: Relative Performance of Small Open Economies

This paper offers an empirical examination of the determinants of a nation’s ability to produce commercially viable innovations, measured as patents, across a sample of twenty three advanced economies. The approach employed is based on estimating National Innovation Capacity that focuses on the long-run ability of economies to produce and/or commercialize innovative technologies, in the spirit of Furman, Porter and Stern, (2002).

Motivated by differences in the rate of innovation between economies with different economic structures we examine the Small Open Economies chosen from this country sample to assess whether there is a significant difference between the determinants of Innovative Capacity in Small Open Economies and the other developed economies. A number of alternative specifications are estimated.

We find that advanced Small Open Economies and larger economies do not differ substantially in their determinants of patenting activities and, notwithstanding the limitations of patents as measures of innovative activity, we conclude that policy choice and variation plays a key role in determining the productivity of R&D, when measured as patenting activity.