The way economists and practitioners think about innovation has evolved considerably in the past decade. From coming up with new ideas, innovation is now seen as an “ecosystem” conducive to the generation of ideas and the “implementation” of these ideas in the form of new products, services, and processes in the marketplace. Some elements of the ecosystem promote competitiveness in their own right (education, the availability of finance, competition, technology) while supporting the innovation ecosystem. This section focuses only on aspects specific to innovation and leaves the discussion of the other relevant but more general factors to the previous sections. Building on the current GCI, which focused primarily on technological innovation, the new framework attempts to capture this broader notion of innovation.

We define idea generation as the capacity of a country to produce new inventions—solutions to specific technological or business problems—that change consumption patterns and models, whether this takes the form of addressing new needs or new ways to perform tasks. The generation of ideas is, however, just the first step toward innovation, which also requires bringing products, processes, or business models to market or concretely implementing them in the economy, as explored below. Opportunities and incentives to create new ideas translate into more innovation and hence higher productivity.⁹⁸ Although economic literature focuses more on system incentives to spur idea generation at the aggregate level, business literature suggests that, since a relevant part of innovation happens or is implemented in firms, it is important to identify the factors that generate innovative companies and/or motivate them to innovate. Therefore both streams of literature need to be considered to provide a complete picture of the innovation environment.

Some models of endogenous growth focus only on the link between productivity and formal R&D,⁹⁹ highlighting the importance of legal environments (such as the patent system) and the effect on competition of the race for new ideas. In these models, factors that lead economies to employ more researchers and invest more capital resources in research will produce more new ideas, will be more competitive, and will grow faster.

However, recent studies show that non-R&D forms of innovation are also important: in types of innovations that do not require fixed costs (such as research costs) and/or that may allow for a “first mover advantage,” the inventors may be able to maintain a competitive advantage for a sufficient interval of time to have an incentive to innovate. For example, innovations in managerial and organizational techniques, personnel, accounting, work practices, finance, and branding can increase the efficiency with which a good or service is produced.¹⁰⁰ In this case, the benefits of innovating are not associated with selling the innovation, but instead are seen in the increase of profits through efficiency gains.

Ideas are by nature “non-rival” (that is, they can be “consumed” by several users at same time). Some ideas are also non-excludable—that is, the author cannot prevent others from using them, either because they cannot be protected by patent laws or because of their nature. For example, it would be impossible to prevent people from using the Pythagorean theorem, even if it were patented. Some ideas, on the other hand, are temporarily excludable: the authors can prevent others from using them. This can happen if the idea is patented or if the idea is hard to duplicate so the author has a first mover advantage while competitors figure out how to copy it. If ideas are non-excludable, inventors will not be able to reap the benefit of their inventions. In this case, only few ideas will be generated.¹⁰¹

As noted above, not all ideas are generated by scientific R&D; they can also result from other activities, when certain conditions align. Therefore, providing an innovation-conducive environment can increase the likelihood that this kind of “softer” innovation takes place. The literature shows that ecosystems and networks encourage collaboration, connectivity, critical and creative thinking, diversity, and confrontation across different visions and angles;¹⁰² these systems increase the likelihood that new ideas will be generated.¹⁰³

In some cases the development of creativity and collaboration skills is related to educational opportunities, as discussed in the education section. For example Dyer et al. (2011) propose that—beyond technical inventions—the ultimate drivers of innovation are related to human capital factors such as curiosity and the capacity to observe, understand, and use ideas from different fields.¹⁰⁴