Measurement of National Innovation

Having discussed the importance of the NIS we must now considers how innovation can be measured and how the performance in different national innovation systems can be compared.

Whilst giving a more comprehensive understanding of national innovation the NIS perspective is inherently more complex to measure and asses than more traditional linear systems. As such a number of different approaches in analysis have been attempted and as the Hu and Mathews commented there is still no consensus on the most suitable system (Hu & Mathews, 2005).

Measurements of Innovation outputs

The measurement of innovation may be conducted

in multiple ways one common indicator is to measure it through its effect on the economy.

GDP – Is the total of income received by wealth generating sectors of the economy:

manufacturing, service, agriculture, mining etc. In order to

make more accurate comparisons GDP may be adjusted by scaling the currency using PPP ie estimating the equivalent purchasing power using a comparison a range for basic product and service costs.

GNP – In contrast to GDP GNP includes total national income and also the money that domestic companies earn overseas minus what overseas companies earn in the country and expatriate.

Table 3 Explanation of GDP &GNP

This approach is particularly suitable for countries with high GDP and whose growth is considered to be principally attributed to innovation². The key indicators used for this field are items such as GDP level, GDP growth, and GDP per capita see Table 3 Explanation of GDP &GNP Care must be taken with these measures to account for additional factors that alter these indicators or create apparent change. Particularly of concern are significant price variations in natural resource prices especially oil, remittances and the effect of large scale FDI. It has been suggested that for some economies GNP may be a better measure of economic growth (Forfas, 2005).

The economic performance of innovation based sectors such a high technology and their proportion of national output may be used to give a clearer idea of performance.

Another method that may be used at a regional or national level is to undertake large scale surveys. These vary from the simple task of asking firms if they consider themselves innovate ³ to examining innovation output. At a firm level innovation output may be measured by the proportion of turnover that comes from new products and processes. The speed of new technology adoption, technological processes and the use of business best practice as well as patenting activity may describe innovation within a firm (Organization for Economic Co-operation and Development, 2005). Surveys may also be undertaken to examine the diffusion of specific practices or technology, by the use of careful questions the adoption of technology can be measured. The OECD warns that “since innovations take considerable time to defuse surveys covering only a single country need careful interpretation”.(Organization for Economic Co-operation and Development, 1997)

The European Trend Chart on Innovation warns that national innovation systems cannot be measured by quantitative data alone without considering the structural and institutional elements on the NIS (European Commission - Enterprise Directorate General, 2005).

At the national level patenting is often used as a measure of innovation performance, national patents are used to examine the inventiveness of a country or of sectors within a country.

Patent levels drawn from national patent offices are only able to indicate the invention they cannot measure commercialization or diffusion of innovations. Thus when a more specific indicator is needed to include more of the innovation process and to allow comparison of different nations the number a patents granted by the US Patent and Trademark Office is used (for international comparison purposes this is normally combined with factors such as

2 Within the context of the Global Competitiveness Report these countries are classed as stage three economies

3 Particularly inaccurate in the service sector due to the difficulty in defining service innovation

population). This is based on the fact that the resources and costs needed to register a patent at the United States patent office would only be justified if applicant seeks to commercialize the patent. In addition “the use of US patents (as in indicator) helps ensure a standard of technological excellence that is at or near the global technology frontier…International patents constitute the best available measure of innovation that is consistent across time and location” (Furman, Porter, & Stern, 2002).

Some sources make use of patent applications rather than parents granted notably Eurostat and The OECD. An attempt at the standardization of patents as a measurement method has been undertaken by the OECD and their Oslo Manual – Proposed Guidelines for Collecting and Interpreting Technological Innovation Data (Organization for Economic Co-operation and Development, 1997), despite some criticism this text of often consulted (Feinson, National Innovation Systems Overviews and Country Cases, 2003)(Acs & Varga, 2002)(Yim

& Nath, National Innovation Systems in the Asian Context, 2005).

Extensive research has been undertakes to assess the suitability of patenting as an indicator (Eric, 2002)(Abrunhosa, 2003) and this method is not without its problems see Table 4 Problems With Patents as an Innovation Indicator

Caveat Source Incompleteness – many patents are not patented since

patenting is only one way of protective and invention

(Eric, 2002)

Inconsistency in quality – the importance and value of patented inventions vary considerably

(Eric, 2002)

Inconsistency across industries and fields – industries and fields vary considerablably in their ability to patent inventions

(Eric, 2002)

Inconsistency across countries – inventors from different countries have a different propensity to patent inventions and countries have different patent laws

(Eric, 2002)

(For systems that use patent applications)

Patent application does not reflect success rate - often application rates vary from country to country (even for US Patents) making comparison inaccurate

Derived from comments by (Eric, 2002)

Inability to represent full range of innovation – service innovation often rely on processes that cannot be patented

( Milberge E / IBM Corporation, 2004)

US patent application may be for reasons other than commercialism– due to patent law differences applications may be made that to cover areas that are not patentable in the home market (notably software patents that have not been available in most of Europe).

Author’s Own Research

Limitations on data accuracy/comparability - statistics produced by patent offices my use different bases as measurement of origin of patent. The USPTO determines the national origin of the application by the nationality of the first applicant listed

Author’s Own Research

Many patents are not commercialized and therefore do not contribute to national innovation – even patents that are filed overseas (e.g.in the USPTO) are often not commercialized

(Organization for Economic Co-operation and Development, 2005)

Table 4 Problems With Patents as an Innovation Indicator