The effects of government effectiveness on innovation performance.

Abstract: Background: Innovation’s role in economic growth is crucial. Countries have acknowledged that and introduced innovation policies to promote economic growth since the ‘80s. But governments must have the capacity and effectiveness to support organizations and institutions for innovation, so the uneven development among countries raises the question of whether it is affected by government effectiveness. Objectives: This work investigates the interlink between government effectiveness as measured by the World Bank, and innovation performance, as measured by the European Innovation Scoreboard (EIS). Its objective is to identify how government effectiveness affects innovation performance. Methodology: This work follows a quantitative research strategy since the study is based on a large dataset and uses statistics to analyze data. To explore the impact of the variables, this work follows a panel regression approach. The data are publicly available by EU and World Bank. The data set consists of the Summary Innovation Index (SII) -an overall score in the EIS-, and the Government Effectiveness(GE) index from the World Bank during 2014-2020. Results: According to the analysis, the Fixed Effects Least Square Dummy Variables (FE-LSDV)regression model is superior to the other models (pooled OLS and Random Effects). The FE-LSDVmodel can explain 68.88% of the data. The analysis also shows that GE negatively impacts SII by a factor of -0,3228078. However, the P value and t-tests reveal that the correlation is not statistically significant. Conclusions: Our results contradict the previous studies. This may be due to the weaknesses identified in the previous studies, the time lag effect between the change in the government effectiveness index when the change in the innovation performance is noticeable, and the inverted U-shape relationship between innovation performance and government quality. Recommendations for future research: As future work can be suggested, an analysis including data from the previous funding periods. Also, the elasticity of innovation performance regarding government effectiveness within a larger time period can be studied. Furthermore, researchers can broaden the time period to include data over a minimum of 14 years period to investigate the time-lag effect and the inverted U-shape relationship.