Bate et al.

Journal of Innovation and

Journal of Innovation and Entrepreneurship (2023) 12:20
https://doi.org/10.1186/s13731-023-00283-2 Entrepreneurship

RESEARCH Open Access

The determinants of innovation

performance: an income‑based cross‑country
comparative analysis using the Global
Innovation Index (GII)
Adisu Fanta Bate1,2* , Esther Wanjiru Wachira1 and Sándor Danka1

*Correspondence:
[email protected] Abstract
1
Doctoral School of Business Despite the dearth of research on innovation, the key determinants of innovation
Administration, Faculty performance still need to be clarified. Besides, a comparative analysis of the determi-
of Business and Economics,
University of Pecs, Pecs, Hungary
nants of innovation performance across countries at different income levels has yet
2
Wolaita Sodo University, Sodo, to be found. This study, therefore, aims to bridge this research gap by considering the
Ethiopia innovation performance of 63 countries. Participating countries were purposefully
selected from the Global Innovation Index (GII) dataset. Multistage and multimodal
analyses were conducted, including multiple linear regressions, hierarchical regression,
and ANOVA, to examine the variation in innovation performance and pinpoint criti-
cal determinants in each category of countries. The result reveals that human capital,
research, infrastructure, and business sophistication are the key pillars determining
countries’ innovation performance. In a variable-level analysis, innovation linkage and
knowledge absorption (both of business sophistication), research and development
(R&D), and infrastructure (inculcating both physical and digital) are the best predicting
variables. The shortage of human capital to promote R&D is the biggest bottleneck
hampering innovation in the lower-middle-income category. Also, both human capital
for R&D activities and innovation linkage equally affect the upper-middle-income,
and the latter one, innovation linkage, remains the main challenge even for the high-
income category. The study implies that innovation performance predicts a coun-
try’s economic growth. The level of innovation performance and the determinants
of innovation vary per the countries’ income levels. Accordingly, countries and firms
in various income categories should prioritize tackling their respective bottlenecks
hindering innovation performance in their policy directions. The study claims to have
extended the horizon of understanding determinants of innovation across countries
and revealed the most crucial factors in each category of countries. Further empirical
comparative research can be done by incorporating an informal institution, national
culture, as an additional determinant and specifying sectors across income categories.
Keywords: Innovation, Innovation inputs, Innovation outputs, Determinants of
innovation, Business sophistication, Market sophistication, Institutions, Infrastructure,
Human capital, R&D

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 2 of 27

Introduction
Innovation has been defined as introducing new products or services, new processes,
opening new markets, and using new resources to create value in the market (Obunike
& Udu, 2019; Wang & Ahmed, 2017). Scholars classify innovation as technological
and non-technological innovativeness (Rahman et al., 2016; Tseng, 2014). Combining
technological and non-technological innovation makes businesses more competitive
(Zawawi et al., 2016). According to Pisano (2015), there are four types of innovation: dis-
ruptive, architectural, routine, and radical. Damanpour and Wischnevsky (2006) argue
that businesses and startups should focus more on radical innovation, while large firms
should focus more on routine or incremental innovation to gain competitive advantage.
In general, new business ventures are regarded as the driver of innovation and wealth
creation. New and relatively small firms can be seen as the primary engine for employ-
ment opportunities, incentives for innovation, job creation, and the improvement of the
well-being of the residents (Sembiring, 2016; Tsatsenko et al., 2020). Hence, countries
encourage the growth of these small and new firms to reduce unemployment and pov-
erty. Small and medium-sized enterprises (SMEs) represent 99% of all businesses in the
EU (European Commission, 2020). This signals the fact that the competitiveness and
innovativeness of countries primarily emanate from these firms. Smith (1993) argues
that it is not a nation that is powerful but firms that run business in its territory. It can
also be argued that it is not a country that is innovative but firms, especially SMEs, that
operate under its jurisdiction.
Despite their overwhelming share and contribution towards economic development
and employment, the firms face a multifaceted challenge of innovation to stay afloat.
These challenges are internal to organizations and external from institutional, micro-,
and macro-level factors. The level of innovation in small or new businesses determines
either their success or failure (Frambach, 1993). Notably, most small or new companies
fail to innovate (Ndesaulwa & Kikula, 2016). This failure to innovate has implications
such as reduced competitiveness, less awareness of environmental changes, and innova-
tive solutions, resulting in poor performance (Farsi & Toghraee, 2015; Hausman, 2005).
Firms’ failure to innovate results in a nation losing its competitive advantage from inno-
vation. For countries to remain competitive, firms must continuously innovate to ensure
that their products or services match the changing technology and markets (Hutt &
Speh, 2010; Pisano, 2015). The role of innovation in stimulating the economic growth
of both developing and developed countries is indispensable (Barrichello et al., 2020).
Hence, it needs a valid account of innovation performance to improve it. However, no
single set of measures is commonly entertained and countries’ innovation performance
has been measured in various ways. Contrary to the previous research (such as Hsu
et al., 2014; Qureshi et al., 2021; Stern et al., 2000; Ulku, 2004) that only used the size
of patent applications to measure innovation performance, the present study adopts a
diverse set of measures ranging from knowledge and technology outputs to creative out-
puts of innovation from Global Innovation Index (GEI).
Previous literature has also focused on determinants of innovation (Barrichello et al.,
2020; Protogerou et al., 2017; Qureshi et al., 2021), innovation challenges per country
(Farsi & Toghraee, 2015; Uvarova & Vitola, 2019), dynamics of innovation (Sharif et al.,
2021). However, despite the dearth of research on innovation, the key determinants

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 3 of 27

or inputs of innovation still need to be clarified. Also, as per the current researchers’
knowledge, a comparative study on the determinants of innovation performance among
country groups at different income levels: high-income, upper-middle-income, lower-
middle-income, and low-income countries, whose classification is based on the World
Bank, is barely found.
This study, therefore, aims to bridge this research gap by considering the innovation
performance of 63 countries. Its objectives can be summarized as follows: to identify
the key pillars of innovation based on GEI, to determine the best predicting model or the
key determinants (inputs) of innovation, and to analyze an income-based cross-country
variation in innovation performance. Multistage analyses were conducted using multi-
ple linear regression, hierarchical regression, and ANOVA models. The results indicate
that human capital and research, infrastructure, and business sophistication as the key
pillars determining innovation performance. The study further reveals that the lack of
human capital that promotes R&D is the biggest bottleneck that hampers innovation in
a lower-middle-income category, whereas both innovation linkage and human capital
that promotes R&D in an upper-middle-income category and innovation linkage in a
high-income category. The remaining sections of the paper consecutively present the lit-
erature review, methodology, data analysis and results, discussion and conclusion, and
implication and limitation.

Literature review and hypothesis development

Determinants of innovation
The genre of innovation has been widely studied since the 1970s. Early researchers
focused on the concept of innovation and scales for the measurements (Hurt et al., 1977;
Midgley & Dowling, 1978; Subramanian & Nilakanta, 1996). Consequently, research on
innovation broadened to areas such as customer innovativeness, the impact of inno-
vativeness (Hult et al., 2004; Roehrich, 2004; Venkatraman, 1991), and determinants of
innovation (Bhattacharya & Bloch, 2004; Romijn & Albaladejo, 2002).
Furthermore, academic scholars expand their research on the determinants of inno-
vation. For instance, Pertuz et. al. (2018) argue that organizational structures, work
climate, knowledge development, and human resource well-being are some factors
that determine the innovation capacity of medium-sized firms. Additionally, Restrepo-
Morales et al. (2019) identified R&D activities and alliances as the determinants of the
innovativeness of SMEs in Colombia. At the same time, Babuchowska and Marks-Biel-
ska (2021) reveal that streamlining work, improvement in quality, and compliance with
the requirements as some of the determinants of innovation in dairy farms in Poland.
Moreover, Kireyeva et al. (2021) identify the company’s age, type, sector, R&D, and tech-
nology as positively influencing the organization’s tendency to innovate. Interestingly,
competitors in the market and the location (region) negatively influence the tendency
to innovate (Kireyeva et al., 2021). Innovation remains an essential component of the
competitiveness of companies. Table 1 shows the empirical studies on determinants of
innovation and measures of innovation performance in different countries.
One can conclude from this that the significant determinants of countries’ inno-
vation performance are lack of appropriate innovation policies (Uvarova & Vitola,
2019), lack of skills and knowledge in innovation (Farsi & Toghraee, 2015; Qureshi

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 4 of 27

Table 1 Empirical analysis of the determinants of innovation

Studies Measures of Country coverage Key findings Firm size/type
innovation

Sudolska and Innovation outputs Poland The innova- Manufacturing

Łapińska (2020) tion capability is sectors
determined by
inter-organization
capability, hiring
employees in R&D,
and increasing firms’
internal expenditure
on R&D
Ndesaulwa and Infrastructure, R&D Tanzania SMEs in these SMEs
Kikula (2016) Market conditions countries face the
challenge of gaining
entrance into new
markets, and their
presence in the
market has little
or no influence on
the market prices
as larger firms influ-
ence their market
prices
Uvarova and Vitola Policies European countries Inappropriate inno- Rural SMEs
(2019) Knowledge and skills vation policies, lack
Cooperation and of skills and knowl-
networking edge, inability to hire
a skilled workforce,
inadequacies in
the environment
for innovation and
competitiveness
Agwu (2014) Infrastructure Nigeria Inadequate social SMEs
Skills infrastructures,
taxation, inadequate
financing, and lack
of managerial skills
Gachara (2017) Knowledge Kenya Knowledge chal- SMEs
Resources lenges, resources
Technology challenges, technol-
Regulations and ogy challenges, legal
policy and policies chal-
lenges, and environ-
mental challenges
faced by SMEs in
both developed
and developing
countries
Stern et. al. (2000) International patents 17 OECD countries R&D human Both large and SMEs
granted by the USA resources and
patent office spending policies
such as intellectual
property, trade,
openness, the share
of research by the
academic sector,
and knowledge
stock characterize
innovative capacity

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 5 of 27

Table 1 (continued)
Studies Measures of Country coverage Key findings Firm size/type
innovation

Ulku (2004) Patent applications 20 OECD and ten There is a sig- Both large and SMEs
non-OECD countries nificant relationship
between R&D stock
and innovation.
Innovation rates
increase when
investment in R&D
increases
Hsu et. al. (2014) Patent counts, pat- 32 developed and Higher innovation Financial markets
ent citations, and emerging countries is the result of high-
R&D expenses tech intensive and
external finance
Qureshi et. al. (2021) Patent flows (num- Asia and Pacific R&D, human capital, Both large and small
ber of patent appli- region and Latin infrastructure access, business
cations by residents, America, and the and financial
world development Caribbean development have a
indicators) positive effect
Grego-Planer and Innovative activity of Poland Workforce mobility 202 small Polish
Kus (2020) enterprise (dichoto- and work ethic, businesses
mous response, 0, 1) like workaholics,
negatively affect
innovation
People’s level of
education, manage-
ment attitude
towards innovation,
corporate image
and reputation, and
technological devel-
opment positively
influence
Farsi and Toghraee Human capital Iran A wide range of SMEs
(2015) R&D innovative chal-
Infrastructure lenges, such as
Regulation human resources,
research, and devel-
opment, emerging
new technologies,
regulatory and
inadequate market
information
Source: Authors’ creation, 2021

et al., 2021; Uvarova & Vitola, 2019); spending policies on research and development
(R&D) (Farsi & Toghraee, 2015; Qureshi et al., 2021; Stern et al., 2000; Sudolska &
Łapińska, 2020); intellectual property, trade, and openness (Stern et al., 2000); lack of
knowledge sharing and market information Farsi & Toghraee, 2015; Gachara, 2017);
legal and regulatory issues (Farsi & Toghraee, 2015; Gachara, 2017); and access to
infrastructure (Agwu, 2014; Qureshi et al., 2021). Corroborating these findings, the
Global innovation index, which is applied to the current study, categorizes all the
determinants of innovation under the five pillars: institutions, human capital and
research, infrastructure, market sophistication, and business sophistication. Then,
they are hypothesized with innovation outputs in the following section.

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 6 of 27

Hypothesis development
Though various sources, as shown in Table 1, reveal a diverse set of determinants of
innovation, the Global Innovation Index, which is adopted for this study, summarizes
them all under five pillars: institutions, human capital and research, infrastructure,
market sophistication, and business sophistication. Tracing the literature, the asso-
ciation between these pillars and innovation performance is hypothesized in the suc-
ceeding subsections.

Institutions and innovation performance

Institutions can be either formal or informal (Minto-Coy & McNaughton, 2016;
Okrah & Hajduk-Stelmachowicz, 2020). Property rights, contracts, policies, regula-
tions, laws, and constitutions are formal institutions, while informal institutions refer
to the culture and societal norms that rule the operations of businesses (Berman,
2013; Minto-Coy & McNaughton, 2016). A country with weak institutional factors or
where the institutional factors put in place are not considered hinders innovation by
deteriorating the confidence of the investors, customers, and industries (Jovovic et al.,
2017; Szalacha-Jarmużek & Pietrowicz, 2018). Additionally, the political environment
of a country determines the efficiency of innovation. Hence, increasing the invest-
ment attractiveness of locally owned firms with local authorities’ assistance helps cre-
ate a good connection for innovation (Yachmeneva & Vol’s’ka, 2014).
According to Oluwatobi et. al. (2016), the quality of institutions (government
effectiveness, political stability, the rule of law, and regulatory quality) affects inno-
vation output in Sub Sahara Africa. In support of these findings, a study by Okrah
and Hajduk-Stelmachowicz (2020) concludes that suitable institutional environments
foster innovativeness. A favorable political climate encourages small businesses and
entrepreneurs to explore various opportunities. At the same time, the people’s confi-
dence in their political system encourages innovativeness (Okrah & Hajduk-Stelma-
chowicz, 2020). Moreover, a sound legal and regulatory structure fosters the growth
and innovativeness of small businesses (Nyarku & Oduro, 2018). Further, a study by
Wang et al. (2020a) reveals that Chinese firms with high government affiliations are
more innovative than others. They also argued that the influence of government on
innovativeness is primarily related to the intensity of the protection of intellectual
property by legal institutions (Wang et al., 2020a, 2020b). Based on these facts, we
hypothesize as follows:

H1 There is a statistically significant effect and positive relationship between institu-

tions and innovation performance.

Human capital, research and development, and innovation performance

Competent human capital with educational background and adequate skills are
essential for developing new and young businesses. Primary education and contin-
uous investment in the development of human resources are necessary to motivate
innovativeness, especially for new companies. According to Oluwatobi et al. (2016),

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 7 of 27

human capital is an essential determinant of innovation across countries. You et al.

(2021) argue that human capital stimulates innovation since education improves
employee skills and their ability to acquire knowledge. Moreover, educated employees
combine the knowledge acquired in education uniquely to achieve innovation (You
et al., 2021).
Research reveals a positive relationship between human capital and innovativeness.
For example, Farace and Mazzotta (2015) concludes that there is a positive relation-
ship between human capital and the innovativeness of SMEs in Italy. This argument
was in line with Protogerou et. al. (2017) study, which found previous exposure to
R&D, educational background, and team diversity as internal factors that determine
the innovativeness of young European firms. The study by Wang et. al. (2020a, 2020b)
reveals that human capital and R&D are essential factors that explain innovative-
ness, particularly technological innovation in advanced economies. At the same time,
Qureshi et al. (2021) found a positive and significant relationship between R&D and
innovation in Asia–Pacific but not in Latin America and the Caribbean. The study
also found a positive effect of education on innovation in Asia–Pacific, Latin Amer-
ica, and Caribbean countries (Qureshi et al., 2021). Additionally, You et. al. (2021)
finds a positive effect of human capital on a firm’s innovation in China, and increasing
state R&D expenditures encourages the innovation capability of domestic companies
and withstand foreign companies’ competition (Vasvári et al., 2019). Therefore, rely-
ing on these facts, we hypothesize as follows:

H2 There is a statistically significant effect and positive relationship between human

capital and innovation performance.

Infrastructure and innovation performance

A healthy and established technological and physical infrastructure is essential in
enhancing the innovation of businesses. According to Pan et al. (2021), a conducive
technology infrastructure boosts technological innovation and then promotes coun-
tries’ economic development. Also, Jabbouri et al. (2016) found a positive and signifi-
cant relationship between technological infrastructure and innovation performance
in Iraq. Tsetim et al. (2020) indicate that infrastructural dimensions, which include
technology and structure, had a significant relation to the innovativeness of SMEs in
Nigeria. Besides, Qureshi et al. (2021) argue a positive and significant relationship
between infrastructure access and innovation in Asia–Pacific but not in Latin Amer-
ica and the Caribbean. In China, Pan et al. (2021) pinpoint an inverted U-type non-
linear influence of technology infrastructure on the local innovation capability. In the
following hypothesis, we tested this contested result by considering countries income
levels and regions:

H3 There is a statistically significant effect and positive relationship between infra-

structure and innovation performance.

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 8 of 27

Market sophistication and innovation performance

This study views market sophistication regarding the availability of credit facilities that
support businesses’ innovation, access to international markets, competition, and the
ease of protecting small investors from being overtaken by foreign businesses. New busi-
nesses face intense competitive pressure from large and established firms. Therefore,
they should focus more on innovation to deal with the challenge of the ever-changing
and dynamic business environment (Bate, 2019). Organizational innovativeness is
benchmarked against competitors to develop unique products (Im & Workman, 2004).
Additionally, continuous benchmarking with rival companies heightens innovativeness
(Pesämaa et al., 2013).
Despite the competition, small and new businesses, especially in developed coun-
tries, are challenged to access credit (Giang et al., 2019). Academic scholars have argued
that access to finance plays a vital role in the innovativeness of firms (Fernandez, 2017;
Osano & Languitone, 2015). Related literature by Wellalage and Fernandez (2019) on
innovation and SME finance in developing countries revealed a positive relationship
between financing (formal and informal) and the innovativeness (product and process)
of a firm. Against this background, the current study aims to investigate the relation-
ship between market sophistication and the innovativeness of firms and the following
hypothesis tested:

H4 There is a statistically significant effect and positive relationship between market

sophistication and innovation performance.

Business sophistication and innovation performance

This study views business sophistication regarding knowledge workers, innovation link-
ages, and knowledge absorption. Razavi et al. (2012) and Dima et al. (2018) refer to busi-
ness sophistication as the quality of business networks, strategies, and operations. In line
with this, Kirikkaleli and Ozun (2019) argue that business sophistication focuses on the
general quality of the country’s business networks and the quality of individual business
strategies and operations. Moreover, business sophistication can be viewed in terms of
the Knowledge workers that enhance and commercialize innovation. Knowledge is a
crucial element in the development and growth of businesses across the globe. In the
current era of globalization, investing in a more knowledgeable workforce and manag-
ing this knowledge (Hassan & Raziq, 2019) gives businesses a competitive advantage in
innovation. According to Kirikkaleli and Ozun (2019), business sophistication and inno-
vation are essential components of competitiveness in innovation-driven economies.
Razavi et. al. (2012) found a significant positive relationship between innovation and
business sophistication. Protogerou et. al. (2017) revealed that external factors such
as technology collaborations and networking with universities are crucial in explain-
ing the innovation of young firms in Europe. Additionally, the interconnection of busi-
nesses with government and research institutions and customers can be considered
the most significant linkages that boost innovation (Ayman and Asad 2022; Ortega &
Serna, 2020). Also, Kirikkaleli and Ozun (2019) found a positive link between business

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 9 of 27

sophistication and innovation capacity in OECD countries. Following this argument, we

hypothesize as follows:

H5 There is a statistically significant relationship between business sophistication and

innovation performance.

Per capita income and innovation performance

According to Zanello et. al. (2016), the intensity of innovation, types of innovation, and
determinants of innovation vary based on the country’s context and its level of devel-
opment. For instance, in low-income countries, the assimilation and adoption of new
technologies are essential foundations for innovation. This has been furtherly explained
by Qureshi et. al. (2021) that R&D has a positive and significant effect on innovation in
the Asia–Pacific region but not in Latin America and the Caribbean countries. Besides,
infrastructure access positively influences innovation only in Asia and the Pacific region,
whereas financial development affects innovation only in Latin America and the Car-
ibbean. Education level is the only variable that significantly affects innovation in both
regions. Therefore, this study is intended to investigate the variation of determinants
based on the level of economic development: lower-middle-income, upper-middle-
income, and high-income countries and hypothesize as follows:

H6 There is a statistically significant variation in determinants of innovation among

countries with different income levels.

H6a There is a statistically significant variation of determinants of innovation between

lower-middle-income and upper-middle-income countries.

H6b There is a statistically significant variation of determinants of innovation between

upper-middle-income and high-income countries.

Methodology
The study applies a quantitative research design. The cross-sectional data were obtained
from the World Intellectual Property Organization (WIPO): Global Innovation Index
(GII) (2020). The analysis was made at the country level to identify the determinants of
innovation from national perspectives. The country-level data of the index allows inves-
tigating the inputs of innovation, which are commonly known as determinants of inno-
vation, on one side and the outputs of innovation on the other. The country selection
was based on data accuracy in the dataset to incorporate only those countries with the
required data for the measurement. A total of 63 (48% of 131 countries) countries, see
Additional file 1: Table S1, have been included in the study and represent all economic
levels and regions in the world. Multiple linear regression was run to identify significant
determinants at the pillar level and their effect on innovation outputs.
In order to determine the best predicting model, the hierarchical multiple regres-
sion analysis was conducted with the standard stepping method criteria (the probability

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 10 of 27

Fig. 1 The prototype of the hierarchical multiple regression models (Source: Authors’ work, 2022)

of F is equal to 0.05 for entry and 0.1 for removal) at the variable level. To analyze the
effect of relatively highly correlated independent variables and multiplicative terms in
regression analysis, hierarchical multiple regression is an appropriate tool (Wiklund &
Shepherd, 2005). In a hierarchical analysis, starting with a conventional multiple linear
regression, the next higher order of interaction is added, which could consequently be
two-way, or three-way interactions. Then, the incremental R2 and F tests of statistical
significance are evaluated. The interaction effect is considered if, and only if, the interac-
tion value shows a statistically significant contribution over and above the direct effects
of the previously entered independent variables (Cohen, 1977). As a principle, we pur-
sued this approach in the current study to find the best predicting model that shows the
critical determinants of innovation. The assessment of how significant interactions affect
the dependent variable is done by entering selected values of the interaction terms into
the regression equation. Following this, we came up with five models, which depend on
the size of independent variables. We assessed the interaction effect in each model (see
Fig. 1, for the prototype of the modeling).
Besides, one-way ANOVA was conducted to single out the variation of innovation
input and output performance among countries in three income-based groups. The bot-
tleneck in each category is identified and illustrated in the histogram.

Variable description
Contrary to previous research (such as Hsu et al., 2014; Qureshi et al., 2021; Stern
et al., 2000; Ulku, 2004) that only used the size of patent applications to measure inno-
vation performance, this study adopts a diverse set of measures ranging from knowl-
edge creation to knowledge diffusion to gauge innovation performance. The knowledge
creation includes patent applications by origin, patent cooperation treaty applications,

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 11 of 27

Table 2 Variable description

Variable category Pillars Variables/items Source

Independent variable Institutions Political environment World Intellectual Property

Regulatory environment Organization (WIPO): Global
Innovation Index
Business environment
Human capital and research Education
Tertiary education
Research and development
Infrastructure Information and communi-
cation technology (ICT)
General infrastructure
that includes utilities like
electricity
Ecological sustainability
Market sophistication Investment
Credit system
Trade, competition, and
market scale
Business sophistication Knowledge workers
Innovation linkage
Knowledge absorption
Dependent variable Knowledge and technology Knowledge creation World Intellectual Property
outputs Knowledge impact Organization (WIPO): Global
Innovation Index
Knowledge diffusion
Creative outputs of innova- Intangible assets that
tion include patents and copy-
rights
Creative goods and services
Online creativity
Extraneous variable Income-level of countries High-income level World Bank Data: economies
Upper-middle income by per capita GNI in June
2019
Lower-middle-income
Low income
Source: Authors’ creation, 2021

utility models (petty or short-term patents) by origin, scientific and technical publica-
tions, and citable documents H-index. Knowledge diffusion incorporates intellectual
property receipts, high-tech exports, ICT exports, and foreign direct investment net
outflows. The innovation output is also measured regarding knowledge impact that
addresses GDP growth rate per person employed, new business density, ISO 9001 qual-
ity certificates, and high-tech and medium-tech manufacturing. Hence, this study not
only applies, but also overarches the recommendation by Ortega and Serna (2020),
which says the research on innovation performance should measure the size of patents
and their impact. Below, Table 2 displays the pillars and items for both dependent and
independent variables.

Model specification
To keep the validity and reduce measurement error, the data accuracy has been given
prime attention in selecting the subjects for the analysis. Since the dependent vari-
able is continuous, it allows applying regression analysis. There is no multicollinearity

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 12 of 27

Table 3 Hypotheses testing result

Hypotheses Decision

H1. There is a statistically significant effect and positive Rejected

relationship between institutions and innovativeness
H2. There is a statistically significant effect and positive Partially accepted because there is a positive correlation
relationship between human capital and innovative- but not a significant effect
ness
H3. There is a statistically significant relationship Partially accepted because there is a positive correlation
between infrastructure and innovativeness but not a significant effect
H4. There is a statistically significant effect and posi- Partially accepted because there is a positive correlation
tive relationship between market sophistication and but not a significant effect
innovativeness
H5. There is a statistically significant effect and positive Accepted
relationship between business sophistication and
innovativeness
Source: Authors’ estimates, 2021

Table 4 Regression coefficients of pillar innovation inputs and innovation output sub-index
Model Unstandardized Standardized T Sig. Correlations
coefficients coefficients
B Std. Error Beta Zero-order Partial Part

1 (Constant) − 5.878 4.339 − 1.355 0.181

Institutions − 0.029 0.110 − 0.033 − 0.263 0.793 0.792 − 0.035 − 0.013
Human capital and 0.015 0.089 0.017 0.169 0.866 0.788 0.022 0.008
research
Infrastructure 0.238 0.149 0.185 1.600 0.115 0.807 0.207 0.078
Market sophistica- 0.031 0.080 0.030 0.389 0.699 0.662 0.051 0.019
tion
Business sophistica- 0.671 0.083 0.767 8.087 0.000 0.924 0.731 0.393
tion
Source: Own analysis, 2021
Dependent variable: innovation output sub-index

detected among independent variables. The correlation coefficients in Table 4 show

that the ‘r-value of all independent variables is less than 0.9. Also, it is proven that col-
linearity diagnostics show variance inflation factor (VIF) is less than ten, and the ‘Tol-
erance’ values for all independent variables are more than 0.1, which accords with the
rule of thumb. Due to less sample size relative to the number of independent variables
and the perceived considerable variation of performance among participating countries,
the standardized coefficients and R square adjusted have been emphasized. Five models
were run using hierarchical multiple regression to determine a robust model with the
highest predictive power against the dependent variables.

Data presentation and analysis

This section is subdivided into four sections: first, the analysis of hypotheses testing
results is presented; second, the determinants of knowledge and technology outputs of
innovation; next, the determinants of creative outputs of innovation; and, in the end, the
analysis of variance (ANOVA) based on per capita income of countries are presented.

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 13 of 27

Hypotheses testing results

Below, Table 3 indicates the hypotheses test results, while Table 4 shows us the effect
of inputs of innovation and their relationship with innovation outputs. The regres-
sion model significantly predicts 86.6% of innovation outputs. The zero-order or the
Pearson correlation coefficients indicate that all the pillar inputs: institutions, human
capital and research, infrastructure access, and business sophistication, have a solid
and positive relationship with innovation output with an R-value of 0.7, except market
sophistication (r = 0.662). However, we should examine partial and part correlation to
control the effect of other independent variables and single out the relationship between
each independent variable and innovation outputs. In this regard, all pillars, except busi-
ness sophistication, show a weak correlation with innovation outputs with an r value less
than 0.3 as a cut-off point. Also, all the pillars’ unique contribution or effect is insignifi-
cant, except for business sophistication (p = 0.000, B = 0.671). Based on this result, our
hypothesis test goes as follows:
Business sophistication positively correlates to and substantially explains about 76.7%
of innovation outputs, which is the only significant pillar here (Table 4). It means that a
unit change in business sophistication increases a country’s innovation output by 76.7%.
Except for institutions, all others have a positive effect on innovation. In H1, the institu-
tion has no unique significant effect on innovation outputs. As the variables incorpo-
rated in each of these pillars are diverse, the item or variable-level analysis is needed,
which was done in the upcoming section. In the like manner, to better understand and
explain the partial acceptance of H2, H3, and H4, a variable-level analysis needs to do.
Subsequently, the ANOVA was utilized to determine whether countries’ income levels
might have influenced the result.

Analysis of the determinants of innovation and knowledge and technology outputs

The determinants of innovation, such as political environment, research and develop-
ment, knowledge workers, innovation linkages, and knowledge absorption, have shown
strong positive correlations (r > 0.7) with knowledge and technology outputs. In con-
trast, tertiary education and ecological sustainability have shown weak correlations of
‘r-value of 0.33 and 0.426, respectively (Additional file 1: Table S4). Model 6 in the model
summary, Table 5, indicates the best approximate prediction values on the dependent
variable. The model includes all predicting variables (business environment, regula-
tory environment, political environment, tertiary education, education, research, and
development (R&D), ecological sustainability, general infrastructure, information, and
communication technologies (ICTs), investment, trade, competition and market scale,
credit, knowledge absorption, innovation linkages), except knowledge workers. These
variables in the model explain about 84% (adjusted R2 = 0.836) of knowledge and tech-
nology outputs with the least value of error (5:5237) and (R2 change = 0.12, p = 0.035).
As shown in the ANOVA Additional file 1: Table S3, with a p-value of 0.000, the model
makes a statistically significant variance in predicting the dependent variable.
The regression coefficient, Table 6 below shows that knowledge absorption (p = 0.000,
beta = 0.447), research and development (R&D) (p = 0.036, beta = 0.331), and innova-
tion linkages (p = 0.035, beta = 0.260) are, consecutively, the highest and statistically

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 14 of 27

Table 5 Model summary of knowledge and technology outputs

Model ­summaryf Df2 Sign.
Model R R square Adjusted Std. the error Change statistics
R square of the estimate
R square change F change df1

1 0.736a 0.542 0.519 9.4572 0.542 23.290 3 59 0.000

2 0.848b 0.719 0.689 7.6057 0.177 11.740 3 56 0.000
3 0.865c 0.748 0.705 7.4002 0.029 2.051 3 53 0.118
4 0.871d 0.759 0.701 7.4539 0.011 0.746 3 50 0.530
5 0.934e 0.873 0.836 5.5237 0.012 4.711 1 48 0.035
a
Predictors: (constant), business environment, regulatory environment, political environment
b
Predictors: (constant), business environment, regulatory environment, political environment, tertiary education,
education, research and development (R&D)
c
Predictors: (constant), business environment, regulatory environment, political environment, tertiary education, education,
research and development (R&D), ecological sustainability, general infrastructure, information and communication
technologies (ICTs)
d
Predictors: (constant), business environment, regulatory environment, political environment, tertiary education, education,
research and development (R&D), ecological sustainability, general infrastructure, information and communication
technologies (ICTs), investment, trade, competition and market scale, credit
e
Predictors: (constant), business environment, regulatory environment, political environment, tertiary education, education,
research and development (R&D), ecological sustainability, general infrastructure, information and communication
technologies (ICTs), investment, trade, Competition and market scale, credit, knowledge absorption, innovation linkages
f
Dependent variable: knowledge and technology outputs

Table 6 Regression coefficients of the predictors of knowledge and technology output

Coefficients
Model Unstandardized Standardized T Sig. Correlations
coefficients coefficients
B Std. error Beta Zero-order Partial Part

5 (Constant) − 18.831 11.326 − 1.663 0.103

Political environ- − 0.188 0.130 − 0.233 − 1.453 0.153 0.728 − 0.205 − 0.075
ment
Regulatory envi- 0.086 0.108 0.101 0.789 0.434 0.633 0.113 0.041
ronment
Business environ- 0.117 0.126 0.089 0.928 0.358 0.612 0.133 0.048
ment
Education 0.174 0.112 0.138 1.551 0.127 0.514 0.218 0.080
Tertiary education 0.006 0.068 0.006 0.092 0.927 0.339 0.013 0.005
Research and 0.179 0.083 0.331 2.155 0.036 0.831 0.297 0.111
development
(R&D)
ICTs − 0.218 0.148 − 0.216 − 1.473 0.147 0.671 − 0.208 − 0.076
General infrastruc- 0.015 0.110 0.013 0.137 0.892 0.556 0.020 0.007
ture
Ecological sustain- 0.174 0.093 0.142 1.875 0.067 0.426 0.261 0.096
ability
Credit 0.008 0.068 0.011 0.115 0.909 0.573 0.017 0.006
Investment 0.027 0.096 0.024 0.277 0.783 0.574 0.040 0.014
Trade, competition 0.172 0.133 0.122 1.295 0.202 0.495 0.184 0.067
and market scale
Knowledge 0.529 0.103 0.447 5.114 0.000 0.823 0.594 0.263
absorption
Innovation link- 0.226 0.104 0.260 2.171 0.035 0.791 0.299 0.112
ages
a
Dependent variable: knowledge and technology outputs

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 15 of 27

Table 7 Model summary for creative outputs

Model ­summaryf
Model R R square Adjusted Std. error of Change statistics
R square the estimate
R square F change df1 df2 sign F change
change

1 0.829a 0.688 0.683 6.0752 0.688 134.538 1 61 0.000

2 0.845b 0.714 0.695 5.9621 0.026 1.779 3 58 0.161
3 0.868c 0.754 0.722 5.6866 0.039 2.918 3 55 0.042
4 0.870d 0.757 0.711 5.8043 0.004 0.264 3 52 0.851
5 0.893e 0.797 0.753 5.3640 0.039 9.887 1 51 0.003
a
Predictors: (constant), political environment
b
Predictors: (constant), political environment, tertiary education, education, R&D
c
Predictors: (constant), political environment, tertiary education, education, R&D, ecological sustainability, general
infrastructure, ICTs
d
Predictors: (constant), political environment, tertiary education, education, R&D, ecological sustainability, general
infrastructure, ICTs, investment, trade, competition and market scale, credit
e
Predictors: (constant), political environment, tertiary education, education, R&D, ecological sustainability, general
infrastructure, ICTs, investment, trade, competition and market scale, credit, innovation linkages
f
Dependent variable: creative outputs

significant predictors of knowledge and technology outputs. These variables are also
seen with their strong zero-order correlation coefficients and shallow ‘tolerance’ values
that all support their unique association and indispensable roles in the knowledge and
technology outputs. Both knowledge absorption and innovation linkages refer to the
business sophistication pillar. At the pillar level analysis, the same pillar alone explains
about 83% (beta = 82.6%, p = 0.000) of knowledge and technology outputs (Additional
file 1: Table S5).
In the first step, when entering variables only from the institution, the political envi-
ronment is the strongest and statistically significant predictor of knowledge and tech-
nology outputs with p = 0.003 and beta = 0.603. In the next step, when coupled with
variables from human capital and research, the political environment loses its significant
position, and R&D becomes the only strongest and unique predictor by explaining 69.4%
(p = 0.000, beta = 0.694) of knowledge and technology outputs. In the third step, further
integration with infrastructure variables, the predictive power of R&D is increased to
78.9%, whereas ecological sustainability explains 23.2% (beta = 0.232 p = 0.018) statisti-
cally significantly. However, the R square change (0.029) is statistically insignificant with
a p-value of 0.118, as shown in Additional file 1: Table S4. Likewise, the R2 change of
the fourth model is also insignificant, and none of the added market sophistication vari-
ables (credit, investment, trade, competition and market scale) play a statistically sig-
nificant and unique role in explaining knowledge and technology outputs. Finally, in the
last sixth model, R&D, knowledge absorption, and innovation linkages have statistically
significant and unique contributions with the highest R2 value. Throughout the models
tested, R&D has maintained its statistically significant position in uniquely predicting
innovation’s knowledge and technology outputs (see Table 6).

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 16 of 27

Table 8 The regression coefficient of predictors of creative outputs

Coefficientsa
Model Unstandardized Standardized T Sig. Correlations
coefficients coefficients
B Std. error Beta Zero-order Partial Part

5 (Constant) − 14.908 10.360 − 1.439 0.156

Political environ- 0.159 0.120 0.249 1.322 0.192 0.829 0.182 0.084
ment
Education 0.166 0.106 0.167 1.568 0.123 0.642 0.214 0.099
Tertiary education − 0.042 0.065 − 0.051 − 0.645 0.522 0.366 − 0.090 − 0.041
R&D − 0.069 0.079 − 0.160 − 0.862 0.393 0.685 − 0.120 − 0.054
ICTs 0.129 0.130 0.161 0.992 0.326 0.740 0.138 0.063
General infrastruc- 0.120 0.100 0.126 1.201 0.235 0.453 0.166 0.076
ture
Ecological sustain- 0.185 0.087 0.192 2.130 0.038 0.605 0.286 0.134
ability
Credit − 0.002 0.060 − 0.003 − 0.028 0.978 0.586 − 0.004 − 0.002
Investment − 0.032 0.092 − 0.036 − 0.344 0.732 0.483 − 0.048 − 0.022
Trade, competition 0.051 0.118 0.046 0.433 0.667 0.255 0.061 0.027
and market scale
Innovation link- 0.298 0.095 0.433 3.144 0.003 0.754 0.403 0.199
ages
a
Dependent variable: creative outputs

Analysis of determinants of innovation and creative outputs

As shown in Table 8, except trade, competition and market scale (r = 0.255, p = 0.022),
tertiary education (r = 0.366, p = 0.002), and general infrastructure (r = 0.453,
p = 0.000), all other independent variables have a strong and positive correlation with
creative outputs. Like it does to knowledge and technology outputs, tertiary educa-
tion has also shown a weak correlation (r = 0.366) with creative innovation outputs.
Among the regression models (see Table 7), model 5 gives the best prediction. About
75.3% (p = 0.000, sign F Change = 0.003) of creative outputs are explained by the
political environment, tertiary education, education, R&D, ecological sustainabil-
ity, general infrastructure, ICTs, investment, trade, competition and market scale,
credit, and innovation linkages. In this model, the regulatory environment and busi-
ness environment from a pillar of institution and knowledge workers and knowledge
absorption from the business sophistication pillar are removed by the system due to
the initial stepping method criteria.
The political environment is the only predictor among the institution pillar vari-
ables that explain creative outputs statistically significantly in the first model in the
absence of variables from other pillars. However, in both dependent variables’ cases,
when coupled with variables from all other pillars, their unique contribution to
creative outputs has become statistically insignificant (beta = 0.249, p = 0.129). The
two statistically significant predictors of creative outputs are innovation linkages
(beta = 0.433, p = 0.003) and ecological sustainability (beta = 0.192, p = 0.038) (see
Table 8 and Additional file 1: Table S8). At a pillar level, creative outputs strongly cor-
relate with infrastructure (r = 0.805, p = 0.000) and business sophistication (r = 0.850,

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 17 of 27

Table 9 Hypotheses test results

No Hypothesis Decision

H6a: There is a statistically significant variation in determinants of innovation among coun- Accepted
tries with different income levels
H6b: There is a statistically significant variation in determinants of innovation between Partially accepted
lower-middle-income and upper-middle-income countries
H6c: There is a statistically significant variation of determinants of innovation between Accepted
upper-middle-income and high-income countries
Source: own study result, 2021

p = 0.000). All the pillars (institution, human capital, research, infrastructure, market
sophistication, and business sophistication) collectively explain about 76% [R adjusted
square = 0.758, with a sign. F change = 0.000 and ANOVA p = 0.000 (Additional
file 1: Table S7)]. However, in this model, only business sophistication (beta = 0.608,
p = 0.000) has a statistically significant effect on creative outputs.

Analysis of variance (ANOVA) based on the per capita income of countries

The countries included in the study are grouped into four based on World Bank’s
income-based country classification1: high-income (1), upper-middle income (2), lower-
middle-income countries (3), and low-income countries (4). This study emphasizes the
first three categories. For economic growth variance analysis, the pillars of independ-
ent pillars are considered: institution, education and research, infrastructure, market
sophistication, and business sophistication. The analysis also considers the performance
of countries in both innovation outputs: knowledge and technology outputs and creative
outputs. Subsequently, other variable or item level analysis is also done to substantiate
the variance among countries.
Levene’s test uses an ‘F-test’ to test the null hypothesis, assuming the variance is equal
across groups. A ‘p’ value less than 0.05 indicates a violation of the assumption (Statistics
Solutions, 2013). In the test of homogeneity of variance, Additional file 1: Table S9, inno-
vation input sub-index in general and institutions and business sophistication pillars
violate the assumption of the F-test and show that the three groups of countries are sta-
tistically at a different level of performance. ANOVA result (Additional file 1: Table S10)
is consistent with this, and means of innovation performance significantly vary within a
group and across groups. Specifically, the post hoc tests of Tukey HSD (Additional file 1:
Table S11) show that institutions, access to infrastructure, human capital, and research
are significantly different across three groups of countries. The three variables are in the
same category under homogeneous subsets (Additional file 1: Table S12).
In a one-to-one comparison, the tests show no significant difference between upper-
middle and high-income countries in terms of innovation output index in general and
market sophistication and business sophistication innovation input performance. On
the other side, the performance of these innovation inputs does not statistically signifi-
cantly differ between upper-middle-income and lower-middle-income.

1
Source: World Bank, country classification by income (https://​datah​elpde​sk.​world​bank.​org/​knowl​edgeb​ase/​artic​les/​
906519).

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 18 of 27

In Table 9, above, H6a clearly shows that the determinants of innovation that affect
the innovation outputs in a high-income country may not work for an upper-middle-
income or a lower-middle-income country, and vice versa. In H6b, we partially accept
this hypothesis because some of the determinants of innovation, such as business and
market sophistication, do not show a remarkable difference between lower-middle and
upper-middle-income countries. However, on the other side, we see the intensity and
importance of determinants of innovation, such as institutions, infrastructure, and
human capital, and research, significantly differ between these groups.
We accept the H6c hypothesis because, as shown in ANOVA (Additional file 1:
Table S10) and post hoc tests, Additional file 1: Table S10, there is a statistically signifi-
cant difference between upper-middle-income countries and high-income countries
in the performance of all the variables: institutions, infrastructure, human capital, and
research and market sophistication and business sophistication. It means that a deter-
minant of innovation in upper-middle-income countries may not exist at all or may not
affect the innovation performance in high-income countries with the same intensity.

Discussion
At the pillar level, our hypothesis (H1) that postulates a statistically significant effect and
positive relationship between institutions and innovation performance was rejected. Of
course, this does not mean institutions do not play decisive roles in innovation. How-
ever, it could be understood in such a way that role of the institution in innovation is less
compared to other pillars (infrastructure, human capital and research, market sophisti-
cation, and business sophistication). Also, our further variable-level analysis reveals that
variables of institution pillars such as business environment, regulatory environment,
and political environment are in a set of variables in the best predicting model of innova-
tion and also supported by previous findings (Jovovic et al., 2017; Szalacha-Jarmużek &
Pietrowicz, 2018; Udimal et al., 2019). Hence, instead of treating the institution pillar in
general terms, it would be preferable to treat it at a variable level.
Supporting H5, business sophistication positively correlates to and substantially
explains (67%) innovation outputs. It is the only statistically significant pillar and
explains about 83% of knowledge and technology outputs and 60.8% of creative outputs
of innovation. Knowledge absorption and innovation linkages are the business sophisti-
cation variables that significantly contribute to knowledge and technology outputs. It is
consistent with previous findings that indicate a significant relationship between knowl-
edge management and innovation of firms (Hadhri et al., 2016; Price et al., 2013). A free
flow of knowledge among employees, stakeholders, and other institutions is crucial to
generate new ideas, products, or services (Bate, 2019). Especially the innovation link-
ages among government, research institutions, and customers are the most significant
linkages that boost innovativeness (Hadhri et al., 2016). In line with this, the level of
interaction with different parties, especially academic partners, is the key determinant
to boosting the innovation performance of the developing country (Bate, 2021; Hadhri
et al., 2016; Ortega & Serna, 2020; Qureshi et al., 2021). An industry perspective study
by Giones (2019) unfolds that university-industry collaborations can be enhanced by
training that focuses on attitude change of firm owners, innovation vouchers, and grants
by a university.

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 19 of 27

Among pillars, human capital, research, and business sophistication are decisive in
predicting knowledge and technology outputs. As shown by hierarchical regression, a
proper set of the business, regulatory, and political environment; tertiary education, and
research, and development (R&D); ecological sustainability concern; general infrastruc-
ture, information, and communication technologies (ICTs); investment, trade, competi-
tion and market scale, and credit system; knowledge absorption, and innovation linkages
is the best model to predict and enhance knowledge and technology outputs of innova-
tion. An ample of previous studies also support this model. For example, the credit sys-
tem (Giang et al., 2019), access to finance (Fernandez, 2017; Osano & Languitone, 2015),
academic knowledge and skills of human resources (Bate, 2021; Farsi & Toghraee, 2015;
Uvarova & Vitola, 2019; You et al., 2021) play an essential role in the innovativeness of
firms. Also, partnership and technology transfer and R&D activities (Hadhri et al., 2016;
Qureshi et al., 2021), the pace of technological development, and the population’s edu-
cational level (Grego-Planer & Kus, 2020) accelerate innovation, Weak institutions dete-
riorate the confidence of the investors, customers, and industries (Jovovic et al., 2017;
Szalacha-Jarmużek & Pietrowicz, 2018). Technological infrastructure that includes
mobile phones, internet access, online platforms, and digital workshops are believed to
have a tremendous effect on the innovativeness of SMEs in all business areas (Bate, 2021;
ITC, 2018; Oyedele et al., 2014). In a regulatory environment, maintaining institutions
like property rights essentially encourages firms to engage more in the innovation of
new products in developing countries (Udimal et al., 2019).
Among these factors, the study further reveals that knowledge absorption, research
and development, and innovation linkages, respectively, are the highest and statistically
significant predictors of knowledge and technology outputs of innovation. In accord
with this, several researchers have proved that R&D and researchers are essential ingre-
dients to enable and increase innovation performance (Farsi & Toghraee, 2015; Hadhri
et al., 2016; Qureshi et al., 2021; Ulku, 2004). Hadhri et. al. (2016) pinpointed a solid rela-
tionship between R&D activities and innovation. They further explained that firms those
spend more on R&D activities innovate more in service, product, and process; whereas
Mustafa and Yaakub (2018) argue that technology adoption as the key to enhance com-
pany performance. In the study covering several countries from Asia- the Pacific region
and Latin America and the Caribbean, Qureshi et. al. (2021) find R&D, human capital,
and infrastructure access, among others, as the key determinants of innovation.
As happened to knowledge and technology outputs, innovation linkage is the main
variable under business sophistication contributing to creative outputs of innova-
tion. At the pillar level, business sophistication and access to infrastructure are the
two crucial and statistically significant pillars to enhancing the creative outputs of
innovation. Especially infrastructure that ensures ecological sustainability is highly
demanded, and therefore, it shows that utilities, including energy alternatives or
electricity, machinery, or transportation, are needed to be eco-friendly, which
scales up the need for innovation. Also, the result pinpoints that, since almost all
the variables are the same, the model that best predicts knowledge and technology
outputs can also be applied to explain creative outputs. Hence, to accelerate inno-
vation (including both knowledge and technology outputs and creative outputs),
the desired effort need to be appropriated to all these factors: integrating business,

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 20 of 27

Fig. 2 Innovation activities as per countries’ income level (Source: Own study result, 2021)

regulatory, and political environment; advancing tertiary education, and R&D;

improving ecological sustainability, general infrastructure, and ICTs; sophisticat-
ing investment and trade, competition and market scale, credit system; and ensur-
ing knowledge absorption, and innovation linkages. Moreover, the results imply that
innovation linkages, knowledge absorption, infrastructure, and research and devel-
opment exert preponderant influence on innovation performance and may need to
draw the utmost priority, including extra budget allocation. This supplements the
argument made by Hadhri et. al. (2016), Protogerou et. al. (2017), Ortega and Serna
(2020), and Ćudić et. al. (2022) as they argue that technology collaborations and net-
working with universities, interconnection with government, research institutions,
and customers are the most significant linkages to boost innovation.
However, as shown by the hypothesis (H6a) testing result, the innovation deter-
minants in a high-income country do not equally work for an upper-middle-income
or a lower-middle-income country, and vice versa. Even if the determinants are the
same in all groups, the level of priority and importance in predicting innovation per-
formance is not the same. Further analysis, the histogram illustration below, reveals
the difference in the performance status of the groups and the bottleneck/s of each
group, where poor performance is observed (Fig. 2).
Therefore, the lower-middle-income countries are expected to prioritize human
capital and research (mainly focus on R&D activities), business sophistication (pri-
marily focus on innovation linkages followed by knowledge absorption), and infra-
structure, respectively. Those studies conducted in lower-middle-income countries
such as Iran (Farsi & Toghraee, 2015), Asian countries including India, Vietnam,
Bangladesh, and Sri Lanka (Qureshi et al., 2021), Nigeria (Agwu, 2014), Ethiopia
(Ayinaddis, 2022) and Gulf Cooperation Council Countries (Chun-Yao, 2014) prove
that human capital that promotes R&D and infrastructure is found to be the key
to flourish the innovation. The upper-middle-income countries are expected to

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 21 of 27

equally consider both bottlenecks—R&D and innovation linkage, and then consecu-
tively pursue knowledge absorption and infrastructure. It also shows that innova-
tion linkage is a bottleneck where the high-income countries lag. Therefore, the
countries and firms in the high-income category must prioritize innovation linkage,
knowledge absorption, R&D, and infrastructure, consecutively, to boost their inno-
vation performance.

Conclusion and implications

The study data were collected from World Intellectual Property Organization (WIPO)
and the World Bank country classification website. A total of 63 (48% of 131) countries
were purposefully selected from Global Innovation Index (GII) participating countries
to minimize errors related to measurement and data validity by incorporating countries
with complete data or missing very little data. Multistage analyses were conducted in
which the underlying hypotheses on the determinants of innovation were tested. First,
multiple linear regression was conducted on innovation inputs to identify the most pre-
dicting pillars: a hierarchical regression was conducted to identify the best predicting
model of innovation performance based on variables; the one-way ANOVA analysis was
applied to examine the level of effect and significance of the selected determinants in
the countries at different income levels. The three most essential pillars for innovation
are business sophistication, human capital and research, and infrastructure. The busi-
ness sophistication pillar contributes most significantly to both knowledge and technol-
ogy outputs and the creative outputs of innovation. Especially knowledge absorption
and innovation linkages variables significantly contribute to innovation in general. The
other most essential variables are research and development (R&D) and infrastructure
that considers ecological sustainability.
The best predicting model of determinants of innovation performance should
consider how to integrate business and political environment; advance tertiary
education, and research and development (R&D); enhance ecological sustainabil-
ity and build general infrastructure, information, and communication technologies
(ICTs); sophisticate investment and trade, credit system, competition and market
scale; and ensure knowledge absorption, and innovation linkages. Among these, the
most decisive factors are human capital, R&D activities, innovation linkages, knowl-
edge absorption, and infrastructure. Their effect and significance to innovation outputs
vary based on countries’ income levels, and countries should prioritize the bottleneck
determinants in which they poorly perform or lag. Hence, high-income countries must
focus on innovation linkage, knowledge absorption, human capital that promotes R&D,
and infrastructure, consecutively. Whereas firms and countries in the upper-middle-
income category can equally prioritize and invest in human capital that promotes R&D
and innovation linkage, then knowledge absorption comes, followed by infrastructure.
The lower-middle-income category must prioritize human capital that promotes R&D
activities since it is the biggest bottleneck, followed by innovation linkages, knowledge
absorption, and infrastructure, consecutively.

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 22 of 27

Managerial or policy implications

The study results benefit stakeholders, including policymakers, development and finan-
cial agents, venture capitalists, donors, business incubators, researchers, and govern-
ments, who foster innovation efforts within a country or across countries. The study
result implies that innovation performance is one of the main factors in explaining the
variation of countries’ economic growth, considering per capita income. Besides, the
key factors should be identified and prioritized in each category of countries based on
the importance of lagging variables. Countries and firms in an upper-middle-income
category are expected to give equal attention to R&D and innovation linkage at a time,
then go for knowledge absorption followed by infrastructure. In contrast, countries and
firms in a high-income category need to focus on innovation linkage, knowledge absorp-
tion, R&D, and infrastructure, consecutively to further advance their innovation perfor-
mance. This implies that infrastructure access is not the main bottleneck to all countries
and firms, especially in the upper-middle-income and high-income categories. Those
countries and firms in the lower-middle-income category should not directly imitate
what all upper-middle or high-income countries do regarding innovation. They should
first work on human capital that promotes R&D activities by providing sufficient funds,
as also previously suggested by Ayinaddis (2022).
Without reliable R&D activities, innovation problems cannot be easily defined; if the
problems are not identified well, an attempt to bring innovative solutions may not bring
the desired results. Following this, the firms and countries of the lower-middle-income
could work on innovation linkage. Innovation linkage can be any public/private/aca-
demic partnership that bolsters innovation in creating a joint venture or deals or sharing
innovative resources, knowledge, skills, and experience within a country or abroad. It
includes developing clusters (geographic concentration of firms, suppliers, or producers
of related products), patent families filed in two offices, and university/industry research
collaboration (Global Innovation Index, 2020). The university–industry collaborative
innovation linkage can be enhanced by training that focuses on the attitudinal change of
businesses, providing innovation vouchers, and grants from a university (Giones, 2019)
and facilitating both paid and unpaid internships and apprenticeships for students and
staffs to work with industry owners.
Following this, the lower-middle-income countries could work on knowledge absorp-
tion and infrastructure. Knowledge absorption refers to an organizational capability to
integrate, transfer and utilize new knowledge from external sources. Innovation linkage
can be a means for knowledge absorption. Knowledge can flow in and out via the link-
age created with different partners, including institutions, customers, suppliers, com-
petitors, and dealers. Thus, it needs a proper strategy for firms to absorb this knowledge
and then commercialize it. The strategies may include creating shared digital platforms,
research forums, seminars and conferences, and workshops, exchanging resources,
including materials and machinery, and giving access to employees for on-the-job and
off-the-job training and experience-sharing opportunities. Finally, to commercialize this
knowledge, access to infrastructure (both physical and digital infrastructure) is vital, and
proper action should be taken to improve the infrastructure in each business unit or
sector.

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Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 23 of 27

Theoretical implications
The current study strengthens the findings of the previous research that lack of skills and
knowledge in innovation (Farsi & Toghraee, 2015; Qureshi et al., 2021; Uvarova & Vitola,
2019), spending policies on research and development (R&D) (Ayinaddis, 2022; Farsi &
Toghraee, 2015; Stern et al., 2000; Sudolska & Łapińska, 2020; Qureshi et al., 2021), lack of
knowledge sharing and market information (Farsi & Toghraee, 2015; Gachara, 2017), legal
and regulatory issues (Farsi & Toghraee, 2015; Gachara, 2017), and access to infrastructure
(Agwu, 2014; Qureshi et al., 2021) are the critical determinants of innovation. It also re-
boosts the findings of Protogerou et. al. (2017), Ortega and Serna (2020), and Ćudić et. al.
(2022), who argue that technology collaborations and networking with universities, inter-
connection with government, research institutions, and customers are the most significant
linkages to boost innovation. Moreover, the current study lays groundwork and extends the
horizon of theoretical knowledge in understanding the determinants of innovation in cat-
egories of countries at different income levels, instead of focusing on individual countries.
As a limitation, the study does not distinguish the innovation performance based on the
size of firms. Hence, further research can be done on how these determinants of innovation
separately affect SMEs and large businesses in four categories of countries: high-income,
upper-middle-income, lower-middle-income, and low-income category. The current study
considers the five pillars of GII: institutions, human capital and research, infrastructure,
market sophistication, and business sophistication. Since it didn’t consider informal institu-
tions (national culture), future research should incorporate the latter as one of the deter-
minants and analyze how significantly it predicts innovation along with other pillars. The
current study analyzes the overall innovation performance across country groups, with-
out stratifying based on sectors or industries, therefore future research can make specific
sector-wise comparative analysis on innovation performance across countries at different
income levels.

Supplementary Information
The online version contains supplementary material available at https://​doi.​org/​10.​1186/​s13731-​023-​00283-2.

Additional file 1: Table S1. Per-capita income based country classification (subjects of this study). Table S2. Model
summary of knowledge and technology outputs. Table S3. ANOVA of models. Table S4. Regression coefficients of
the predictors of knowledge and technology output. Table S5. Regression coefficients of pillar against knowledge
& technology outputs of innovation. Table S6. Model summary for creative outputs. Table S7. ANOVA for models of
creative output and its predictors. Table S8. Regression coefficient of predictors of creative outputs. Table S9. Test
of homogeneity of variance. Table S10. ANOVA table for percapita income and determinants. Table S11. Post hoc
tests: multiple comparisons. Table S12. Homogeneous subsets.

Acknowledgements
We would like to express our appreciation to Prof. Luke Pittaway, from Ohio University, USA, for his constructive com-
ments and proofreading of the article.

Author contributions
EWW, contributed the literature review and the introduction of the study (partially), and all other parts (writing method-
ology, analysis of results, discussion, conclusion, and implication) were contributed and articulated by AFB, who is also
the corresponding author. Technical support, comments, and project advisory role, including drafts proofreading were
made by SD. All authors read and approved the final manuscript.

Funding
Open access funding provided by University of Pécs. This study has not received any sort of financial research support
from either individuals or institutions. Its APC is covered by the University of Pecs, the authors’ affiliated institution.

Availability of data and materials

The dataset of the study can be accessed from the public website of the world intellectual property organization, Global
Innovation Index2020: https://​www.​wipo.​int/​global_​innov​ation_​index/​en/.

Content courtesy of Springer Nature, terms of use apply. Rights reserved.

Bate et al. Journal of Innovation and Entrepreneurship (2023) 12:20 Page 24 of 27

Declarations
Competing interests
The authors declare that they have no competing interests.

Received: 3 October 2021 Accepted: 4 March 2023

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