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 Granted across a sample of 23 advanced economies. The approach employed is based on estimating National Innovative Capacity that focuses on the long-run ability of economies to produce and/or commercialise innovative technologies, in the spirit of Furman et al. (2002). The time period of our analysis covers 1993 to 2005 and employs panel estimation.Motivated by differences in the rate of innovation between economies with different economic structures we examine the Small Open Economies (SOEs) in our country sample to assess whether there is a significant difference between the determinants of Innovative Capacity in SOEs and the other larger developed economies.We find that advanced SOEs and larger economies do not differ substantially in their determinants of producing innovative technologies 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.