Why Do Some Countries Innovate Better than Others? A New Perspective of Science, Technology, and Innovation Policy Regimes and National Absorptive Capacity

Abstract

This paper looks into the determinants of national innovation performance from the perspective of policy regime and establishes a theoretical model on how a country’s dual Science, Technology, and Innovation (STI) policy regimes, democratic and meritocratic, and national absorptive capacity (NAC) jointly determine its national innovation performance. A democratic STI policy regime promotes innovation through channels of freedom, social equality, and public participation. A meritocratic STI policy regime promotes innovation through channels of good governance and rational policymaking. The model further proposes that the relationships between STI policy regimes and national innovation performance are moderated by potential NAC (PNAC) and realized NAC (RNAC) in opposing directions. The fixed-effects panel regression of OECD countries confirms that both democratic and meritocratic STI policy regimes have positive effects on national innovation performance. Moreover, the democratic effect is positively moderated by PNAC but negatively moderated by RNAC. In contrast, the meritocratic effect is positively moderated by RNAC but negatively moderated by PNAC. The major contribution of this paper is to highlight the importance of a country’s STI policy regimes as the bedrock and NAC as the leverage to generate more homegrown innovations.