WIPO (World Intellectual Property Organization), the global agency of the United Nations promoting policies, services and cooperation in the area of intellectual property^[1]) has published its annual report, Global Innovation Index since 2007, for nine consecutive years. The report was compiled by the WIPO in collaboration with other external organisations, including the John Cornell University, INSEAD (Business School for the World), A.T. Kearney global consultancy, a CII (Confederation of Indian Industry), the IMP3rove (European Innovation Academy), and other external experts and advisers. The Joint Research Centre of the European Commission has also sent the data to an external independent statistical organisation for an opinion.

Most important conclusions that may be drawn from the data of the report

In a regional context, the position of Hungary (33rd position with a score of 44.71) may be considered as favourable: only traditionally more developed regions are ahead of us, including Austria (20), the Czech Republic (27) and Slovenia (32). Analysing transition economies, the publication claims that their positions are stable amongst the first 50, the largest “upcoming” national economies are Poland (improved 7 places, now at 39), and Ukraine (this year it jumped from position 64 to 56).

Domestic data primarily lend themselves to the conclusion that the favourable situation is probably due to the market performance of some multinational corporations operating in Hungary. This is also supported by the favourable position of foreign direct investment and technology export. In addition to this, the directions of further development are primarily described by data on the SME sector, primarily indicators on the financing position of SME development, such as lending, internal debt, venture capital investments.

An analysis of Hungary’s position

Analysing Hungary’s position in detail, we get the full picture if in addition to strengths and weakness, we also take a closer look at the position of Hungary according to individual indicators. 

Strengths include:

• the export of creative products within the total trade volume - the position of Hungary is the 7th
  
• similarly, the ratio of capital investments aimed at abroad - here Hungary is the 8th
  
• the number ISO14001 environmental certificates relative to the country’s GDP – Hungary is the 9th in the overall ranking
  
• the number of ISO9001 certificates – Hungary’s position is the 10th
  
• net foreign direct investment relative to GDP - where Hungary ranks 12th, but here it is to be noted that only 5 European countries are in the top 25
  
• high-tech export is also one of the strengths – Hungary is the 13th in the current ranking
  
• the ratio of high-tech import within the total volume of trade – Hungary is the 19th
  
• finally, as for the domain names the country-code top-level domains (i.e. the country code top level domains relative to the number of population aged between 16-59) indicator is amongst these strengths – Hungary is ranked the 20th
  

Further 10 indicators are included in the weaknesses:

(It has to be noted that in certain cases the data of several countries - even as many as 10 countries - are missing from the list, thus we can examine the ranking on a shorter list only.)

• the indicator of joint ventures, strategic alliances “0” (on a scale of 0-100) – ranking 54th of 75
  
• printing and other media manufacturing – ranking the70th of 94
  
• university graduates in science and technology – Hungary’s ranking is 72nd of 102
  
• Venture capital deals is also at “0” (on a scale of 0-100) – ranking 72nd of 86
  
• the internal (domestic) debt of the private sector relative to the GDP (loans, non-share securities, etc.) – ranking 77th of 126
  
• GDP growth/worker – ranking 78th of 109
  
• microfinance gross loans (finances small entrepreneurs through microcredit service providers) relative to the GDP – ranking 80th of 83 (but the data come from 2007)
  
• market capitalisation (value of companies at current stock exchange rate) – ranking 81st of 93
  
• firms offering formal trainings - ranking 87th of 94
  

Factors influencing the ranking

The report of 2016 includes 128 countries (in 2015 the number of countries evaluated was 141), which were ranked according to 82 complex indicators, summarising the innovation strengths and weaknesses of countries, the level of R&D, innovation potential and outcome. The 82 indicators were collected from more than 30 international public and private sources, of which 58 are hard data, 19 are composite indicators and 5 are questionnaire-based data.

The annual study establishes an absolute ranking for a given year. (I.e. annual changes in the given countries - whether the country’s position in the given area improved or declined - are not examined by the publication)

They compose one single indicator out of the 82 indicators, and this single indicator will determine the final ranking. As the 83 indicators differ to a great extent, the global ranking blurs the line between the outcome of different sub-areas, therefore, a more accurate information may be arrived at through the analysis of individual indicators.

To see the indicators in terms of which we have strengths or weaknesses, it is worth examining the ranking of the 82 indicators within the country. Strengths are made up of the top 10 indicators in the ranking of the given country. Analogously, weaknesses are shown by the last 10 indicators.

Components of the index

The index is composed of the following metrics and can be divided into the following sub-indices. The Innovation Input Sub-index is made up of 5 pillars, such as institutions (political, regulatory and business environment^[2]), intellectual capital and research (education, tertiary education, R&D^[3]), infrastructure (infocommunication, general infrastructure conditions, ecological sustainability^[4]), market sophistication and complexity (credits, investment, trade, competitiveness and marketisation^[5]), business sophistication and complexity (those working in the knowledge economy, innovation networks and linkages, the absorption of innovation^[6]). The Innovation Output Sub-index is composed of 2 pillars, namely Knowledge-technology (knowledge creation, its impacts and diffusion^[7]) and Creative Output (creative goods and services, online creativity^[8]).

General conclusions

The most important result of this year’s report is China’s entry into the top 25, which indicates that middle- income countries gradually catch up with the innovation frontline dominated traditionally by high-income countries and they also become successful innovators. At the same time, the introduction of the report reiterates that the innovation gap between developed and developing countries still exists. As for China, the study itself admits that changes in the ranking are also due to changes in the metrics and methodology of the index. A further important message of the publication is that innovation requires permanent investment and the growth rate of average R&D expenditure before the crisis in 2009 has still not been reached, it was 7% back then, whereas now it stands at 4%. This refers to the decrease of R&D expenditure in the most developed economies and also to the slowdown of the pace of developing countries catching up with the developed world.

The group of the top 10 countries is more or less unchanged, Switzerland has kept its leading position. The top five furthermore includes Sweden, the UK, the USA and Finland. The Netherlands dropped from the fourth to the 9th position, whereas Singapore and Ireland are stable in the top 10. Germany improved two positions and ended up as the tenth, whereas Korea improved its 14th position last year to the 11th and nearly got into the top 10. The top 10, however, this year does not include Luxembourg (from the 9th place it dropped to the 12th this year), and Hong Kong dropped from the 11th to the 14th position. It is interesting to see Japan as the 16th and Israel as the 21st, and Estonia, which has the favourable ranking at 24.

^[1] The organisation established in 1967 currently has 189 members, its headquarters are in Geneva. It has 7 Sectors responsible for the following areas: Brands and Design, Copyright and Creative Industries, Development, Patents and Technology, Global Issues, Global Infrastructure, and Administration and Management. Hungary has been member of WIPO since 1970.
^[2] Here primary emphasis is placed on the stability on political institutions and rule of law, the quality of their services, the sophistication of the non-governmental sector and the quality of its services, the efficiency of the regulatory activity of the governmental sector and its supportive attitude to the private sector, the rate tax liabilities and the ease of starting a business.
^[3] The quality of primary and secondary education, education expenditure, public education spending per pupil, PISA scales, teacher-pupil ratio, the spread of tertiary education, innovation-related sectors such as engineering sciences, manufacturing and construction in tertiary education, the mobility of university students, the scores of the top universities of a country in the world ranking of 2015, full time researchers (FTI), R&D expenditure at national level relative to the GDP, and the ratio of the largest R&D spending companies in a given country constitute the indicators of this pillar.
^[4] The indicators of the infocommunication pillar: access to ICT, intensity of ICT use, e-government services, the online activity of citizens (e-participation). The components of the general infrastructure sub-pillar: electricity output per kilowatt hour per person, complex indicator of logistics performance, building of roads and railroads, the general state of residential buildings, hospitals, schools, office buildings, the state of manufacturing plants, machinery and equipment. The components of the ecological sustainability sub-pillar: GDP-related energy use, ranking based on the environmental performance index of Columbia and Yale universities, number of ISO 14001 certificates in environmental management.
^[5] The indicators of the credit sub-pillar: ease of getting credit, creditors’ protection by regulations on banks’ bankruptcy, number of transactions in local currency. The institution sub-pillar is composed of the following indicators: the protection of minority investors, market dynamics compared to the size of the market, the ratio of trade, number of venture capital transactions. The trade and competition sub-pillar is composed of the following: applied tariff rate weighted mean, 100%, intensity of local competition, domestic market scale, billion PPP USD.
^[6] The number of staff in knowledge-intensive sectors, GERD, BERD, the ratio of female staff in jobs requiring a degree, innovation linkages between public and private sector, number of PPPs, developed clusters, deals with joint ventures and strategic alliances, number of patents per person, the openness of the market to foreign trade, the ratio of researchers in businesses, the ratio of ICT, communication and computer import in total trade, FDI: in percentage of the GDP.
^[7] Within knowledge creation the number of patents submitted to the National Patent Office/population, number of industrial designs relative to the population, scientific publications in recognised foreign journals. Indicators measuring the impacts of Knowledge: software expenditure of new businesses, number of ISO9001 certificates of management systems. Knowledge diffusion: the ratio of high-tech exports % total trade, exports of ICT services % total trade, FDI net outflows % GDP.
^[8] Trademark applications in the National Patent Office per population, number of industrial designs by origin, exports of audio-visual products, Wikipedia edits and Youtube uploads in % of population between ages 14-69, top-level country domains, the performance of printing and publishing industry in total market performance, the ratio of the exports of creative goods in total trade.