The relationship between innovation and the economic fortunes of countries is not a long-established trend. Its significance is rising by the day as the manifold dimensions of the knowledge economy unfold. However, the question of identifying and ranking countries as the forefront of innovative activities is a contentious one. It is logical to expect such a situation as none of the major economies will accept that they are falling behind competitors in innovation, a proxy marker for where their economies will be in coming years.

The latest in the series of assessments about the innovativeness of countries is Bloomberg’s Innovation Index. Bloomberg produces a list of the 50 most innovative countries based on an innovation quotient derived using several factors that include the share of gross domestic product (GDP) spent on research and development (R&D) activities (or R&D intensity), productivity as measured by the share of GDP per employed person, R&D per million population, patent applications per million population and presence of high-tech companies among publicly listed firms.

The index provides some interesting insights. The US is the most innovative country by the sheer strength of its high-tech companies although its R&D intensity is relatively low. South Korea is the second best, because of its relatively better patenting activity. However, its productivity numbers are well below average: a rather strange finding given the high marks that South Korean firms get for their shop floor efficiency.

But this is not the only counterfactual element of this index. Most countries, other than those at the top of the list, are not known innovators. But the most surprising of the findings is the low ranking of China in the index despite the fact that the country has rapidly increased its R&D spending in recent years.

Measured in terms of purchasing power parity (PPP), China’s R&D expenditure reached nearly $200 billion in 2012, almost twice the level of spending in 2008. As a result of this surge, China was able to replace Japan as the second largest R&D spender in PPP terms since 2010. China’s spending on this account has registered double-digit increases over the past few years and indications are that its spending in 2013 will rise by 12% on the heels of an 11% increase in 2012. Owing to this frenetic increase, China is expected to spend more than 52% of the planned US spending on R&D in 2013.

But it is not merely in its financial commitment that China’s R&D spending stands out, the country seems to be investing in several critical areas, most notably in churning out scientists and engineers in which it is currently outpacing the US. Furthermore, China’s share of technical papers published globally has steadily risen over the past decade, while that of the US has gone in the opposite direction. Importantly, the Royal Society, the association representing many of the world’s most distinguished scientists drawn from all areas of science, engineering, and medicine, in a report published in 2011, showed that China was second only to the US in terms of its share of the world’s scientific research papers written in English. Looking ahead, the report concluded that China’s total research output could surpass that of the US in 2013. If this trend continues, China’s share in the technical papers produced globally will increase to 22% by 2020 while the share of the US will fall to less than 10%.

China is surging ahead not merely in terms of output of research papers, the impact of its papers, too, is greater. The citation impact of Chinese technical papers calculated by Thomson Reuters has shown a steady increase over the past decade while that of the US has stagnated.

Research papers are not the only indicator of output in which China is outscoring the US. The same story has been repeated in the case of applications for patents, another indicator of R&D output. In 2011, applications for the grant of patents for inventions filed by resident Chinese in their national patent office, the State Intellectual Property Office (SIPO), exceeded 400,000.

In the same year, US residents filed about 72,000 patent applications for inventions in the US Patent and Trademark Office (USPTO). It’s on the back of such aggressive patenting that SIPO has emerged as the largest patent office in 2011, upstaging the USPTO. This rapid increase in patent applications seems to have continued unabated in 2012: data available from SIPO for the first 11 months of the year show that the applications received for the grant of patents for inventions increased by nearly a quarter. In other words, total patent applications that China is likely to have received in 2012 will be in excess of 650,000. There is no doubt that these developments will have a lasting impact on the future dynamics of the global economy.

Biswajit Dhar is director general at Research and Information System for Developing Countries, New Delhi.

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