Which indicators explain national innovation performance best? A comparative analysis by levels of income

This study examines the relative importance of institutional factors in driving national innovation across different income levels. Using World Intellectual Property Organization's Global Innovation Index data for 132 countries and the last ten years (2013-2023), we employ fixed-effects regression models to analyse political, regulatory, and economic impacts on innovation outcomes. Results indicate that political stability is crucial for low-income countries, while the rule of law shows varied effects across income levels. Surprisingly, government effectiveness and regulatory quality demonstrate limited impact. Business and market sophistication emerge as stronger predictors of innovation outcomes than traditional institutional variables. These findings suggest the need for tailored innovation policies that consider a country's developmental stage and emphasise the role of sophisticated business practices and market structures in fostering innovation. Our study contributes to the literature by utilising standardised global data, enabling more reliable cross-country comparisons of innovation performance.