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Daniela Benavente

Lead Researcher, Project Manager

The Global Innovation Index, INSEAD eLab

October 12-14, 2011

Fourth edition Five Knowledge Partners

Eight-month consultative approach with Knowledge Partners

Advisory Board of nine international experts

Statistical audit by the Joint Research Centre of the European Commission

• Developed with the OECD, the Handbook on constructing composite indicators (2008)

At the core of the publication: an index ranking countries innovation capabilities and results • 125 country profiles • 80 data tables (59 hard data, 15 composite

indicators, 6 survey questions) • Performances by regional and income groups

Five analytical chapters

• Innovation in Latin America (INSEAD/OECD) • Affordable innovations in India (CII) • Smart cities (Alcatel-Lucent) • The global footprint of R&D (Booz & co.) • Measuring creativity (WIPO)

Global coverage

Broad scope

Effort to capture innovation in emerging markets

Replicable and transparent

computation methodology

Indicator scores

Minimum indicator-

coverage of 50/80 per

country

(cut-off year at 2000)

Scaling

(by GDP current US$, GDP PPP$, population,

totals)

Treatment of outliers

(winsorization, natural logs,

up to absolute skewness > 2, kurtosis > 3.5)

Normalization

(change of direction, min-max except for

survey and indices, 0-100

range)

Sub-pillar scores

Weighted average of indicator

scores

(half weight if low country-coverage or combined)

GII

input and output sub-

indices

pillar scores

Average of sub-index, pillar, sub-

pillar scores respectively

Innovation efficiency

index

Ratio of output sub-index/input sub-index

Coherent and balanced GII framework

• Analysis of conceptual consistency: relevance, timeliness, scaling, etc.

• Data checks: missing values, outliers, skewness, kurtosis, etc.

• Statistical coherence and balance: principal component analysis confirms a single latent dimension

Rankings relatively robust to changes in modelling assumptions Computation

• Random weights for pillars, [10%, 20%] for input, [40%, 60%] for output

• 4,000 Monte-Carlo simulations (1000 runs per model, 4 models)

• Hot-deck v. no imputation (Manhattan distance, 2 nearest neighbors)

• Geometric v. arithmetic average (partially compensatory approach)

Reliable rankings Uncertainty analysis

• 75% of median GII ranks shift less than 5 positions (3 for input, 6 for output)

• 5 countries with unreliable rankings were dropped from the report

The choice of no imputation influences results Sensitivity analysis

HI UM LM LI Mean HI UM LM LI Mean

3.2.4 Share of renewables in energy use, % 11.6 14.8 36.0 68.2 24.4

5.2.3 R&D financed by abroad, % 8.2 8.1 9.3 19.9 9.4

6.2.1 Growth rate of GDP PPP$/worker, % 0.6 2.1 3.1 3.5 2.0

3.3.2 Gross capital formation, % GDP 21.0 23.7 24.4 22.0 22.7

3.3.3 Ecological footprint & biocapacity, ha/cap (2.1) (0.0) 0.7 (0.1) (0.5)

4.1.4 Microfinance gross loans, % GDP 0.0 1.0 2.0 2.0 1.5

6.1.3 Domestic res utility model ap/bn GDP PPP$ 2.5 1.1 10.6 2.5 4.0

7.1.1 Domestic res trademark ap/bn GDP PPP$ 31.5 47.3 63.2 15.7 40.6

2.2.3 Graduates in engineering, % 12.3 12.6 11.0 8.4 11.7

3.2.3 GDP/unit of energy use, PPP$/kg oil eq. 6.2 6.4 5.7 4.3 6.0

4.1.2 Depth of credit information* 4.4 4.7 3.7 1.7 3.9

Low income economies prevail

Lower-middle income countries prevail

Upper-middle income countries prevail

0

10

20

30

40

50

60

NAFTA1 United States of America

2 Canada3 Mexico

Mercosur +1 Chile2 Brazil

3 Argentina4 Uruguay5 Paraguay

6 Venezuela

CAN1 Colombia

2 Peru3 Ecuador4 Bolivia

SICA (6/7)1 Costa Rica2 Panama

3 Guatemala4 El Salvador5 Honduras6 Nicaragua

CARICOM (3/15)1 Guyana

2 Trinidad and Tobago3 Jamaica

America

0

10

20

30

40

50

60

ANZCERTA1 New Zealand

2 Australia

ASEAN (8/10)1 Singapore2 Malaysia3 Thailand4 Viet Nam

5 Brunei Darussalam6 Philippines7 Indonesia8 Cambodia

EAS others1 Hong Kong (SAR),

China2 Korea, Rep.

3 Japan4 China

5 Mongolia

SAFTA (4/7)1 India

2 Sri Lanka3 Bangladesh

4 Pakistan

Asia and Oceania

Economy GII Insti t-

utions

Human

capita l

Infras -

tructure

Market

soph.

Bus iness

soph.Input Scienti fic

outputs

Creative

outputsOutput Efficiency

Income /

average 36.7 65.1 39.1 30.2 42.3 38.6 43.1 27.6 33.0 30.3 0.70

HI High 48.1 82.1 52.3 40.0 54.6 50.4 55.9 39.1 41.3 40.2 0.71

UM Upper middle 33.4 63.1 36.6 27.6 38.9 35.8 40.4 21.5 31.2 26.3 0.65

LM Lower middle 30.4 52.0 29.8 24.6 35.5 31.0 34.6 22.7 29.9 26.3 0.76

LI Low 25.9 50.7 27.8 21.0 30.6 28.3 31.7 18.4 21.8 20.1 0.64

NAC North America 56.5 89.9 55.6 48.9 67.1 56.6 63.6 50.0 48.6 49.3 0.77

ECS

Europe

Centra l As ia 43.0 74.6 46.5 34.4 47.9 44.1 49.5 34.7 38.0 36.3 0.73

EAS

East As ia

Paci fic 42.5 69.8 42.4 36.1 54.1 47.3 49.9 33.7 36.4 35.1 0.70

MEA

Middle East

North Africa 34.5 62.8 42.5 28.0 39.9 34.5 41.5 25.5 29.3 27.4 0.65

LCN

Latin America

Caribbean 31.4 55.7 31.6 28.2 35.5 34.0 37.0 19.0 32.7 25.9 0.70

SAS South As ia 29.9 50.1 23.1 24.8 33.2 26.2 31.5 22.9 33.9 28.4 0.91

SSF

Sub-Saharan

Africa 26.9 54.3 28.7 21.3 31.4 30.2 33.2 18.2 23.2 20.7 0.64

1 Switzerland 63.8 92.6 55.1 44.5 70.1 68.0 66.1 62.0 54.4 58.2 0.88

2 Sweden 62.1 87.3 63.3 51.7 58.9 63.1 64.9 62.1 56.7 59.4 0.92

3 Singapore 59.6 90.4 74.7 47.6 78.7 79.1 74.1 48.9 41.4 45.2 0.61

4

Hong Kong

(SAR), China 58.8 92.8 48.4 53.9 87.0 66.9 69.8 38.1 57.6 47.8 0.69

5 Finland 57.5 89.2 66.5 48.0 56.1 63.9 64.7 58.5 42.1 50.3 0.78

6 Denmark 57.0 94.2 60.2 45.9 64.5 58.1 64.6 46.3 52.4 49.3 0.76

7 US 56.6 86.5 57.4 44.6 70.9 54.8 62.8 57.4 43.2 50.3 0.80

8 Canada 56.3 93.3 53.9 53.1 63.4 58.4 64.4 42.5 54.0 48.3 0.75

9 Netherlands 56.3 87.5 47.6 43.6 61.8 61.6 60.4 53.8 50.6 52.2 0.86

10 UK 56.0 86.4 56.1 43.6 74.4 57.8 63.7 52.3 44.3 48.3 0.76

35 Ita ly 40.7 71.1 44.5 35.9 42.7 45.2 47.9 27.8 39.2 33.5 0.70

Rank 35 49 39 30 53 36 37 46 43 39 63

New metrics

•Tertiary inbound/outbound mobility (global reach)

•GDP per unit of energy use (efficiency)

•Renewable energy and ecological footprint (sustainability)

•Microfinance gross loan portfolio (inclusive innovation)

•Venture capital deals (investment of new ventures)

• Joint venture, strategic alliance deals (linkages)

•R&D financed by abroad/business (mode 2 type of innovation)

•PCT patent filings with foreign inventor(s) (international teams)

•Scaling by GDP in PPP$ (to neutralize the effect of large populations)

Traditional indicators (pillars 2 and 6)

•Education expenditure •School life expectancy •Tertiary enrolment •Graduates in science and engineering •Researchers headcount and gross expenditure on R&D •Employment of knowledge-intensive workers •Scientific and technical journal articles •Royalty and license fees’ receipts •High-tech exports •National office and PCT patent applications

Moldova (Republic of)Ukraine

ItalyRussian Federation

Venezuela (Bolivarian…Hungary

OmanLithuania

GreeceNetherlands

SpainHong Kong (SAR), China

CyprusCzech Republic

EstoniaSlovenia

QatarUnited Arab Emirates

PortugalBelgium

FranceJapan

CanadaBahrain

SwitzerlandUnited Kingdom

New ZealandLuxembourg

United States of AmericaNorway

GermanyIreland

AustraliaAustria

Korea (Republic of )Denmark

SwedenIcelandFinland

IsraelSingapore

GeorgiaAlbaniaAlgeriaTurkey

Costa RicaSwaziland

Brunei DarussalamBrazil

MongoliaKazakhstan

MexicoMacedonia (the…

ChileUruguayGuyanaJamaicaKuwait

Trinidad and TobagoRomania

BotswanaArgentina

NamibiaMorocco

GhanaBulgaria

Iran (Islamic Republic…Tunisia

ChinaSyrian Arab Republic

SerbiaSaudi Arabia

ZimbabweLebanon

JordanBosnia and…

PolandLatvia

SlovakiaMauritius

KenyaCroatia

Malaysia

SudanPakistanEthiopiaNigeria

CambodiaNicaragua

Burkina FasoCôte d'Ivoire

UgandaPhilippines

MadagascarBangladesh

BeninZambia

MaliParaguay

GuatemalaPeru

EgyptSenegal

El SalvadorIndia

EcuadorSri Lanka

HondurasNiger

CameroonTajikistanTanzania…

IndonesiaKyrgyzstan

MalawiRwanda

South AfricaColombia

AzerbaijanYemen

ArmeniaThailand

Bolivia…Viet Nam

Panama

High-tech

Computer and communication service

Foreign Direct Investment

Royalty and license fees

Mirror image of each other

The adoption of innovations developed

elsewhere constitutes an innovation

INPUT

5 Business sophistication

5.3 Knowledge absorption

payments

net inflows

imports

imports

OUTPUT

6 Scientific outputs

6.3 Knowledge diffusion

receipts

net outflows

exports

exports

4.1 Credit Conditions Strength of legal rights for credit

Depth of credit information

Flows Domestic credit to private sector, % GDP

Microfinance gross loans, % GDP

4.2 Investment Conditions Strength of investor protection

Flows Market capitalization, % GDP Total value of stocks trade, % GDP Venture capital deals / GDP PPP$

4.3 Trade & competition

Conditions Applied tariff rate weighted mean, % Market access trade restrictiveness, % Intensity of local competition

Flows Imports of goods & services, % GDP

Exports of goods & services, % GDP

Flo

ws

Co

nd

itio

ns

Investment Flo

ws

Co

nd

itio

ns

Credit

Flo

ws

Co

nd

itio

ns

Trade & competition

▪ Italy

0 10 20 30 40 50 60 70

Brunei DarussalamTrinidad and Tobago

GreeceIndia

OmanSaudi Arabia

KuwaitRomaniaBahrainCroatiaPoland

BulgariaLithuaniaSlovakia

LatviaItaly

United Arab EmiratesPortugal

SpainSlovenia

ChinaCyprus

Czech RepublicQatar

HungaryBelgiumEstoniaFrance

AustraliaJapan

AustriaNorway

LuxembourgKorea (Republic of )

New ZealandIsrael

IrelandGermany

IcelandUnited Kingdom

NetherlandsCanada

United States of AmericaDenmark

FinlandHong Kong (SAR), China

SingaporeSweden

Switzerland

High income (HI)

European Union (EU)

China India

United States

China

Germany

France

United Kingdom

Brazil

Canada

Korea, Rep.

Netherlands

Switzerland

Sweden

Norway

Austria

Denmark

India

Russian Federation

Turkey

Iran Venezuela

Argentina

Japan

Italy

Spain

Australia Belgium

Poland

Mexico

Indonesia

Saudi Arabia

Greece

15

20

25

30

35

40

45

50

55

60

65

0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1

Glo

bal

Inn

ova

tio

n In

dex

Innovation Efficiency Index

Efficiency in innovation and GDP in PPP$

Relatively efficient

Relatively inefficient

Japan

Italy

Spain

Poland

Malaysia

Indonesia

Mexico Philippines

Ethiopia

Egypt

South Africa

Colombia

Sudan

Kenya

Algeria

Morocco

Peru

Saudi Arabia

China

United States

Brazil

Viet Nam

Germany

Thailand

France

United Kingdom

Korea, Rep.

Canada

India

Pakistan

Bangladesh Nigeria

Russian Federation Turkey

Iran

Ukraine

Tanzania

Argentina

Uganda Venezuela

R² = 0.7059

15

20

25

30

35

40

45

50

55

60

65

6 7 8 9 10 11 12

Glo

bal

Inn

ova

tio

n In

de

x

GDP per capita in PPP$ (ln)

Innovation GDP per capita and population

Inefficient

Efficient

Poly. (4)

Laggards

Leaders

Learners

Strengths

• 6 Creative goods exports

• 6 State of cluster development

• 12 Applied tariff rate

• 13 School life expectancy

• 13 Time to start a business

• 14 Trademark registrations filed through the Madrid System

• 14 Computer and communications service imports

• 18 GDP per unit of energy use

• 20 Trade and transport-related infrastructure

• 20 Employment in knowledge-intensive services

Weaknesses

• 119 Total tax rate

• 110 Imports of goods and services

• 107 Ecological footprint and biocapacity

• 99 Growth rate of GDP per person engaged

• 97 Legal rights strength to get credit

• 95 Exports of goods and services

• 89 Gross capital formation

• 86 Cost to start a business

• 86 Foreign direct investment net inflows

• 84 Rigidity of employment

Strengths

• 1 Trademark registrations filed through the Madrid System

• 1 Total value of stocks traded

• 1 Press freedom

• 1 Applied tariff rate

• 1 Computer software spending

• 1 Patent applications filed through the PCT

• 2 Scientific and technical journal articles

• 2 University/industry collaboration on R&D

• 2 Quality of research institutions

• 3 Employment in knowledge-intensive services

Weaknesses

• 119 Strength of investor protection

• 105 Ecological footprint and biocapacity

• 97 Creative services exports

• 76 Gross capital formation

• 75 Time to start a business

• 69 Growth rate of GDP per person engaged

• 58 Imports of goods and services

• 56 Online participation

• 49 Tertiary outbound mobility

• 48 GERD financed by abroad

1. Innovation leaders are found outside OECD countries

2. All regions show potential as hubs of innovation, companies and organizations need to look at global networks

3. Biggest progress in Institutions and Market sophistication

1. China is the only developing economy in the top 30 (29th)

2. East Asia and the Pacific (EAS) and the Middle East and North Africa (MEA) have similar income structures, the former prevails in the rankings, at par with Europe and Central Asia (ECS)

3. Latin America and Caribbean economies show average performance in the rankings, South Asia and Sub-Saharan Africa with some challenges to take-off

1. Top 10 of the Efficiency Index includes six densely populated economies: Nigeria, China, Pakistan, Brazil, India and Bangladesh

2. Those with challenges in converting their enabling capabilities into results: Malaysia, Chile, Lithuania and South Africa (top 40 on Input, lower on Output)

3. South Asian economies highly efficient (Bangladesh, India, Pakistan, Sri Lanka): Input Sub-Index ranks within 87th and 123rd, Output Sub-Index ranks within 44th and 69th

1. Many different roles for different actors: action and cooperation

2. Governments must adopt policies friendlier towards technological catch-up and the absorption of knowledge

3. Relevance of venture capital , joint ventures, strategic alliances, dynamic stock markets, increased employment in knowledge-intensive services, etc.

1. This is not the 'ultimate ranking' but part of a journey to better understand, measure and facilitate innovation

2. Some linkages are confirmed in the data: deficits in the Human capital and research pillar lead to mediocre performances on Scientific outputs

3. But need for better statistics, with greater economy-coverage

1. Prominence of trade-related variables over output variables

2. Importance of count variables over value variables

3. Weakness of creative output pillar due to lack of statistics

4. Challenges in comparisons year to year