State of an innovation system: theoretical and empirical advance towards an innovation efficiency index

Innovation is currently seen as a cornerstone not only for economic development but also as an intrinsic human activity that could help to face the great challenges of human kind. Given the importance of innovation in the new European 2020 Strategy, measuring progress but also monitoring what drives innovation becomes crucial for policy development. Following upon this strategy the new European flag initiative “Innovation Union” called for a new “single” indicator on innovation. Currently the information infrastructure on innovation in Europe contains a number of indicators. Most of the current indicators at the national or sector levels use a performance theoretical framework based on an efficiency model of inputs and outputs. The last five editions of CIS have been a bastion of innovation policy research during the last decade. Despite this, CIS has been criticised for not having an umbrella framework that unifies its different underpinnings to explain what drives innovation to actual innovation and economic outcomes. In this paper we propose a framework that enables the theoretical and empirical linkages between the drivers of innovation to innovation performance via the integration of core features determining innovative behaviour in to a single composite. This index enables to assess the total propensity of firms to innovate and assess the relative innovation performance at the sector and country level. The approach adopted here to create the index overcomes long standing theoretical and methodological issues related to the reduction of complexity in a meaningful form, scope, aggregation, normalisation and validation of innovation composites. The empirical demonstration of the index was done using CIS4 data and the results validate the theoretical structure and robustness of the proposed model. This enables its replication for innovation policy analysis in different settings. The model underlying the proposed index provides not only a depiction of the efficiency of the innovation system but also a link to economic performance and to the factors that determine relative performance.