Innovation at country-level: Association between economic development and patents

Raghupathi, Viju; Raghupathi, Wullianallur Article Innovation at country-level: Association between economic development and patents Journal of Innovation and Entrepreneurship Provided in Cooperation with: Springer Nature Suggested Citation: Raghupathi, Viju; Raghupathi, Wullianallur (2017) : Innovation at countrylevel: Association between economic development and patents, Journal of Innovation and Entrepreneurship, ISSN 2192-5372, Springer, Heidelberg, Vol. 6, Iss. 4, pp. 1-20, https://doi.org/10.1186/s13731-017-0065-0 This Version is available at: https://hdl.handle.net/10419/194849 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ RESEARCH Open Access Innovation at country-level: association between economic development and patents Viju Raghupathi 1* and Wullianallur Raghupathi 2 * Correspondence: [email protected] 1 Koppelman School of Business, Brooklyn College of the City University of New York, 2900 Bedford Ave, Brooklyn, NY 11210, USA Full list of author information is available at the end of the article Abstract This study analyzes the role of economic indicators in country-level innovation, represented by patents in the technology sector. Innovation indicators include the ratio of patents owned by foreign residents and the number of patent applications in each industry in the technology sector. Economic indicators include GDP, gross national income, labor cost, R&D expenditure, real minimum wage, tax revenue, and education enrollment. The data for OECD countries collected from stats.oecd. org for 2000 to 2010 is analyzed using Cognos. Results show that countries with low GDP rely on foreign collaboration for innovation; education enrollment stimulates innovation; among the sectors, government and higher education have higher R&D expenditures than private and non-profit sectors. A significant contribution of our research lies in the dimension of internationalization and ownership of technology innovation. We suggest viable solutions for countries facing tax revenue losses arising from mobility of patents. Keywords: Economic development, Patent, Industry, OECD, Education enrollment, Cognos, Business intelligence, Innovation Background Today, the world’s societies face severe economic and social challenges. The economic downturn of 2008–2009 has led to reduced growth, rising unemployment, and soaring public debt. To recover, countries need to find new and sustainable sources of growth. Innovation—the introduction of a new or significantly improved product, process, or method—holds the key to boosting economic growth and productivity. Innovation has much broader implications than Research & Development and is influenced by a wider range of factors. Innovation can help accelerate economic recovery and put countries on a path to sustainable and greener growth. Innovation allows a country to discover opportunities that exist or are likely to emerge in time, to focus on existing business processes and practices that improve efficiency, to find potential customers, to minimize wastage, and to increase profits. Innovation is a key driver of technology development and economic growth. It provides a means of satisfying the demands of the current market and the potential needs of future markets. Innovation is achieved through more effective products, processes, services, or technologies that are readily available to the current market. There is an Journal of Innovation and Entrepreneurshi p © The Author(s). 2017 Open Access This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made. Raghupathi and Raghupathi Journal of Innovation and Entrepreneurship (2017) 6:4 DOI 10.1186/s13731-017-0065-0 increased awareness and recognition among national policy makers about innovation as a key factor in economic growth. Many OECD (Organization for Economic Cooperation and Development)-member countries have enforced strategies and policies to enhance innovation and economic development. Innovation has different implications for different economies such as developing, emerging, and developed. It is important that we develop tools to measure innovation across diverse economies. Various financial, industrial, economic, and social indicators are associated with trends in innovation. Innovation is a crucial factor in national progress. The application of advanced technology along with entrepreneurship and innovation approaches in creation of goods and services results in translation of scientific and technological advances into productive economic activity. This contributes to economic growth when aided by environmental and regulatory structures. Policy makers look to regulatory framework as an instrument to promote innovation (Blind et al. 2004). The bridge between administrative or institutional regulations and innovation is through intellectual property rights (such as patents and copyrights). Policy makers can calibrate the strength of patent protection rights to have an influence on the country’s innovation. As it stands now, research on innovation is fragmented. A general framework of analysis and greater coordination of research efforts will serve to offer a holistic view of the phenomenon, starting from its inputs to its economic and social impact. Innovation has become a multidimensional concept; it is not just about producing new products. It is also about services, technical standards, business models, and processes. What are the key economic factors that determine the success of innovation at a country level? This study addresses the question by exploring the association between economic indicators and innovation (represented by patents) for OECD countries for the years 2000 to 2010. Though other studies have looked at economic growth and innovation, the uniqueness of our study lies in utilizing a large data set that spans a longitudinal period and in deploying a sophisticated analytic tool such as Cognos, in drilling down and identifying patterns and relationships in the data. The remainder of this paper is organized as follows: Section “Research background” provides research background; Section “Methods”describes research methodology; Section “Results and discussion”contains the results and discussion of data analyses; Section “Scope and limitations”outlines the scope and limitations of the research; and Section “Conclusions”offers conclusions along with contributions and implications. Research background Innovation is an important element in the long-term growth and development of an economy. Over time, various definitions and characterizations of innovation have been offered, such as: innovation often arises from novel combinations of existing knowledge (Schumpeter 1934); centers on concepts of renewal, modernization, and change (King and Anderson 2002); and is something new and intended with an often uncertain, risky, and unpredictable outcome (Angle 2000). Innovation has been studied at the individual (Miron et al. 2004), the group Raghupathi and Raghupathi Journal of Innovation and Entrepreneurship (2017) 6:4 Page 2 of 20 (Huelsheger et al. 2009), and the organizational level (Smith et al. 2008). Education and learning are some key factors for innovation (Leonard and Sensiper 1998). Innovation and economic growth are intricately associated. Each drives the other, thus, innovation is a key component in a government’s political agenda (Hsu et al. 2014). Economic indicators have an impact on innovation at various levels: firm, state, and country. In this study, we focus on country-level innovation—specifically, technological innovation represented by patents. Over the last few years, there has been innovation in various industries, particularly in the technology sector. An important indicator of technological innovation is intellectual property (IP), an umbrella term for patents, copyrights, and other creative expressions. Studies have explored the association between stronger patent rights, innovation, and economic growth. The relationship of patents to economic growth arises out of the rationale that stronger patent rights positively influences innovation through costsaving technologies and new product development, which in turn promote economic growth (Kanwar and Evenson 2003; Hudson and Minea 2013). Research in this arena has not always been consistent, however. Park and Ginarte (1997) used an index of patent rights compiled for 60 countries by Ginarte and Park (1997), to study the relationship between patent rights, economic growth, and R&D expenditure. While they found a positive association between strong patent rights and R&D expenditure for upper income OECD countries, they found no association for lowincome countries. In addition, they found no relationship between patent rights and economic growth. On the other hand, Hudson and Minea (2013) found patent rights, along with GDP per capita, to positively influence economic growth. Park (2003) analyzed data for 18 manufacturing industries between the years 1980 and 1995 for 21 OECD countries and found a positive relationship of patents with labor productivity and R&D expenditure. However, for a larger sample of countries, they found that while R&D expenditure increased with patents, labor productivity did not. In an analysis of 32 countries between the years 1981 and 1990, Kanwar and Evenson (2003) found a positive relationship between patent rights and R&D intensity (ratio of R&D expenditure to GDP). Kim et al. (2008) found that patent rights for developed countries were associated with higher R&D intensity. Research is therefore varied and brimming with inconsistent results, which points to the need for more analysis and discoveries. Where innovation is concerned education plays an important role in the economy. Research at universities and public research institutions contributes to innovation through publications that result in the creation of codified knowledge for potential technological innovations by businesses. Countries are investing their resources in academic research, doctoral education, and the knowledge transfer from these institutions. For example, United States legislation such as the Bayh-Dole Act of 1980 has allowed universities to have ownership of intellectual property (IP), which in turn enabled universities to form alliances with the private sector, venture capital industry, and foreign firms. These alliances have resulted in over 42,000 licensing deals and the formation of more than 4500 companies (Atun et al. 2007), contributing to major revenue for the economy. While national legislative frameworks such as the Bayh-Dole Act authenticate the legitimacy of academic patenting activities, they also signal the development of local IP management practices such as IP rights and IP Raghupathi and Raghupathi Journal of Innovation and Entrepreneurship (2017) 6:4 Page 3 of 20 exploitation/incubation, with the objective of promoting economic growth (Weckowska et al. 2015). IP governance and regulation benefits economic growth by providing incentives for innovation without hindering transfer of knowledge (Atun et al. 2007). Note for example that countries with universities that support research commercialization show a higher rate of patents. Also, countries with a highly educated workforce can achieve higher economic wealth and available resources to invest in innovations (Rossberger and Krause 2015). It is therefore relevant to include education in the analysis of economic indicators of innovation in a country. Methods This study investigates the relationship between economic development and innovation at a country level for the OECD-member countries. Table 1 displays the research methodology. The data source for the study is http://stats.oecd.org. Data on innovation and economic development for OECD-member countries was collected for the years 2000 to 2010. In this study, we use patents to represent innovation. This is appropriate since patents can be used to protect inventions by firms, institutions, or individuals (Granstrand 2005). The OECD’s Directorate for Science, Technology and Industry maintains patent data by region and by technology. This study focuses on the patents by technology. Variables were selected at the country level for the longitudinal time period. Table 2 shows all the variables in the research. The economic indicators include variables that cover financial, labor, research and development, and educational components of the economy. GDP per capita measures the total output of a country: it takes the gross domestic product and divides it by the population of the country. In studies involving country-level comparisons, this is very relevant because it reflects the relative performance. GNI per capita is the value of a country’s total income in a year divided by its population, and indicates the average income per resident. Labor cost index is an important indicator that incorporates price changes as well as changes in the composition and characteristics of labor input. Since the direct and indirect costs of labor have the potential to vary by industry, it is important to consider the labor cost index as an indicator. Also, labor has an impact on the innovation level of an economy because it influences the production of goods or services. R&D expenditure includes creative work undertaken systematically to increase the stock of knowledge and the use of knowledge to devise new applications, all of which have the potential to influence innovation. Real minimum wage is the statutory minimum wage converted into a common hourly and annual pay Table 1 Research methodology Data collection and variable selection Data source: http://stats.oecd.org/ Indicators: innovation, economic development ETL Extract: data extracted from OECD database in csv format; Transform: data transformed and prepared for loading with framework manager; Load: prepared data loaded into IBM’s DB2 database and IBM’s Cognos-8 Analytics platform/tools selection DBMS: IBM DB2 | Analytics: IBM Cognos Analysis: Cognos Analysis and Report Studio Analytics implementation Analysis and reports implementation using Cognos Raghupathi and Raghupathi Journal of Innovation and Entrepreneurship (2017) 6:4 Page 4 of 20 period(inUS$)intheOECDcountriesforwhichtheyareavailable.Tax revenue as percentage of GDP represents the percentage of revenues collected from taxes on income and profits, social security contributions, goods and services, payroll, and all other taxes. It reflects the degree to which the government controls an economy’s resources. Ratio of education enrollment to total population represents the enrollment in primary, secondary, and tertiary education expressed as a ratio to the totalpopulation.Thisisanotherimportant economic indicator, with the potential to influence innovation at a country level. Our innovation indicators include the patent statistics extracted from the patents by technology category. The Patent Cooperation Treaty (PCT) offers a unified procedure for filing patent applications with the objective of protecting the intellectual property in each of its contracting members. PCT patent application per 10,000 inhabitants represents the number of applications per 10,000 inhabitants filed under the PCT. Patents owned by foreign residents represent patents that are given for inventors who are not residents of the country in which the application is made. For a variety of economic reasons, inventors can apply for patents in a country outside of their country of residence. Patent applications under PCT by technology sector includes the number of patent applications for different sectors such as chemistry/metallurgy, electricity, human necessities, fixed construction, mechanical engineering/lighting/heating, performing operations/transportation, physics, and textiles/paper. Table 2 Variables in the research Economic indicators Description Gross domestic product (GDP) per capita ($) US $ current PPP, current prices Gross national income (GNI) per capita ($) US $ current PPP, current prices Labor cost index (base year 2010=100) Measures changes in average hourly labor cost, taking into account not only price changes but also changes in the composition and the characteristics of the labor input; Calculated by dividing the labor costs by the number of hours worked. Labor costs are made up of costs for wages and salaries, plus non-wage costs such as employer's social contributions. These do not include vocational training costs or other expenditures such as recruitment costs, and spending on working clothes. Research & development (R&D) expenditure ($) Money spent on creative work undertaken on a systematic basis to increase the stock of knowledge and the use of this knowledge to devise new applications in the sector Real minimum wage ($) Statutory minimum wages converted into a common hourly and annual pay period (in US$) for the OECD countries for which they are available. Tax revenue as percentage of GDP (%) Tax Revenue expressed as a percentage of GDP Ratio of education enrollment to total population (enrollment in 3 levels of primary, secondary, tertiary) Ratio of enrollment in primary, secondary, and tertiary education levels expressed with the total population Innovation indicators Description PCT (Patent cooperation treaty) patent applications per 10,000 inhabitants Number of patent applications in PCT per 10,000 inhabitants (reference date is application date) Patents owned by foreign residents Patents owned by foreign countries (drill down to 8 countries including EU) Patent applications under PCT by technology sector Number of patent applications by technology for different sectors (sectors include chemistry/metallurgy; electricity; human necessities; fixed construction; mechanical engineering, lighting, heating; performing operations/transportation; physics; textiles/paper) Raghupathi and Raghupathi Journal of Innovation and Entrepreneurship (2017) 6:4 Page 5 of 20 IBM Cognos was used as the analytics tool. The variables are granular with the drill down capability for details on country level development. The data was extracted, transformed, and loaded into an IBM DB2 database for processing. Cognos Framework Manager was used to transform the data into cubes. The cubes were published into a package that was then loaded into Cognos Query and Report Studios for analysis and reporting. The data set is comprehensive and longitudinal and allows in-depth analyses. We based our research on the following premises: Patent applications are good indicators of the level of innovation (Granstrand 2005). Patent applications are only applied through Patent Cooperation Treaty (PCT). The International Patent Classification (IPC) for industries offers a sound basis for analyzing data. Patent application date is a good reference point and can be used like the application priority date. Every patent application has a reasonable success rate. We analyzed the data to address our research question: What are the key economic factors that determine the success of innovation at a country level? The following section discusses the results of our analyses. Results and discussion Number of patent applications under PCT We first analyzed the sample of OECD countries for the number of patent applications under PCT, to detect variations, if any. The analysis reflects a wide variation in the number of patent applications. Figure 1 shows the distribution for the countries for the year 2010. Fig. 1 Distribution of patent applications under PCT by country for 2010 Raghupathi and Raghupathi Journal of Innovation and Entrepreneurship (2017) 6:4 Page 6 of 20 As seen in Fig. 1, countries such as the USA, Japan, Germany, Korea, and France have a high number of patent applications under PCT (>10,000) indicating a significant level of innovation. Interestingly, even though there are only two Asian countries in the sample—Japan and Korea—both rank high in innovation. To get an idea of the sustainability of innovation over the years, we compared our 2010 ranking with Bloomberg’s ranking of innovative countries by patents for the year 2015 (Bloomberg 2015). The top countries in our analyses were also among the top 10 in Bloomberg’s list in terms of number patent applications, showing that the innovation level sustained over the 5 years following the research. For further meaningful comparisons, future analyses should consider weighting the patent applications for each country based on the population of the country. We then explored the patents by industry to observe whether some industries were more innovative than others. Figure 2 displays the industry classifications and the number of patent applications for each classification for the year 2010. Figure 2 displays the sector/industry ranking by number of patent applications. The lower-ranked industries (number of applications <5000) are highlighted in red and the higher-ranked (number of applications >10,000) in green. Industries—including textiles, paper, and fixed constructions—show a low number of patent applications compared to industries such as electricity and physics. Most countries tend to focus on the latter type of industries, referred to as sunrise industries because they show more potential for innovation. Breakthrough innovations in electricity and physics, such as electromagnetism or nuclear physics, have led to transformational developments in modern television, computers, and household appliances, and so it is inevitable that associated industries should introduce a high level of innovation. The number of patent applications for performing operations and transporting is also high. Human necessities, an industry category with a high number of patents, include the industries of agriculture, personal or domestic health articles, foodstuffs, and amusement. Countries looking to stimulate innovation should focus on industries that show potential for development and entrepreneurship. R&D expenditure per capita In order to understand the level of economic development in these countries, we looked at Research & Development (R&D) expenditure per capita for a single year, Fig. 2 Distribution of the number of patent applications by industry for 2010 Raghupathi and Raghupathi Journal of Innovation and Entrepreneurship (2017) 6:4 Page 7 of 20 2010 (Fig. 3). The R&D expenditure per capita was calculated using the GPD per capita and expenditure/GDP, as shown. Figure 3 shows that, for 2010, Finland ranks first with the highest R&D expenditure per capita, followed by Sweden, Denmark, and Austria. The large R&D expenditure in Finland can be attributed in part to its headquartering Nokia, the multinational ICT (information and communication technology) company that pioneers innovative technology. These findings are consistent with Bloomberg’s 2015 global innovation ranking of countries based on R&D expenditure (Bloomberg 2015). Sweden and Finland also were among the top five innovative countries in Bloomberg’s ranking. On the other hand, Germany, which is sixth in our ranking, does not figure among the top six in Bloomberg’s 2015 ranking. It may come as a surprise that, in terms of R&D expenditure, the USA does not figure among the top countries in either our analysis or in Bloomberg’s. We expected countries that rank high in R&D expenditure to also be the most innovative. However, Finland, Sweden, Denmark and Austria, which are the top ranked countries for R&D as shown in Fig. 3, do not rank among the top innovative countries shown in Fig. 1. An explanation for this could be the fact that while some countries innovate by increasing their investment in R&D, others do so by utilizing the know-how already generated by other countries (Guloglu and Tekin 2012). Furthermore, R&D is only one of the indicators for innovation; others include institutional and social regulations, education of the workforce, and technical skills of the workforce. Therefore, it is possible to innovate by way of measures other than R&D expenditure. Tax revenue as a percentage of GDP and patents owned by foreign residents At a country level, tax revenue is an important indicator of economic development. We felt it is important to analyze whether a country’s tax revenue as a percentage of GDP Fig. 3 R&D expenditure per capita for 2010 Raghupathi and Raghupathi Journal of Innovation and Entrepreneurship (2017) 6:4 Page 8 of 20 Figure 11 shows the proportion of patents owned by foreign residents and that owned by domestic residents for each country in Europe for one year, 2005. From the pie charts, we see that Estonia, Greece, and Iceland have more patents held by foreign residents (these are circled). To encourage and stimulate more innovation by local residents, countries like these should put in place the appropriate policies and resources to do so. In addition, these countries should focus on improving their educational systems so that they offer the relevant skills and knowledge to foster innovation and growth. The findings on patent holdings by foreign versus domestic residents hold implications for policies on taxation and ownership of patents. These findings are discussed in detail in the “Conclusions” section. Average of economic indicators (GDP/GNI/real minimum wages) and patents owned by foreign residents We analyzed the association between the average of economic indicators (GDP, GNI, and real minimum wages) and percentage of patents owned by foreign residents. We expected that the more developed an economy (higher average of GDP, GNI, and real minimum wages), the lower the percentage of patents owned by foreign residents (Fig. 12). Figure 12 shows that countries with a low average of economic indicators have a high percentage of patents owned by foreign residents. These countries rely on foreign collaboration to strengthen their resources and facilities for innovations. These crossborder collaborations often result in patent ownership by foreign residents instead of locals. On the other hand, countries that have a developed economy—characterized by high GDP, GNI, and real minimum wages—have more local resources and talent, and therefore do not rely on foreign collaboration. This leads to a high proportion of patents owned domestically and a low proportion of patents owned by foreigners. Fig. 12 Economic indicators and patents owned by foreign residents Raghupathi and Raghupathi Journal of Innovation and Entrepreneurship (2017) 6:4 Page 15 of 20 For the countries Estonia, Iceland, and Greece, which show the highest percentage of foreign-owned patents as illustrated in Fig. 11, we analyzed the number of patents under PCT by industry (Fig. 13). We were curious to see whether there is a pattern showing that certain industries dominate the category of patent ownerships by foreign residents. We selected 2003 for analysis. Figure 13 shows that for Greece, Iceland, and Estonia, the industry with the most foreign owned patent applications is performing/operations/transporting followed by mechanical engineering. This finding indicates that local talent in these sectors is insufficient, creating a dependency by the economy on foreign talent. One solution to this dependence would be to enhance education that specifically addresses requirements in these sectors. More local residents should be able to acquire knowledge and skills that encourage innovation internally. In addition, the government in these countries should introduce measures to promote innovations in these sectors. R&D expenditure by sector and patent applications We had analyzed overall R&D expenditure per capita (Fig. 3) for all the countries. To identify significant patterns within particular sectors, we then explored the R&D expenditure by sector (government, business, higher education, and private and nonprofit sector) for the continent of Europe (Fig. 14). Figure 14 shows that government and higher education sectors in Europe have higher R&D expenditures than private and non-profit sectors. To reverse this trend, European Fig. 13 Patents under PCT by industry for countries with high percentage of patents owned by foreign residents Raghupathi and Raghupathi Journal of Innovation and Entrepreneurship (2017) 6:4 Page 16 of 20 countries in this sample should advocate policies that encourage more innovation in the private and non-profit sectors. Scope and limitations There are some limitations to our study. First, although we cover a reasonable time span of 10 years, future studies can cover a longer span thereby increasing the possibility of highlighting more trends and patterns. Second, using analytics, our study looks at associations but does not investigate causality in the relationship between economic and innovation indicators. Third, we only consider a small segment of economic and innovation indicators. Obviously, other and more variables could be considered and included for future research. Our data is from a secondary data source (OECD), which is an aggregated set from multiple models and sources and therefore subject to limitations. Finally, we deploy a health analytics approach to investigate the relationship between economic indicators and innovation. Other studies could explore alternate approaches, theories, and models. Conclusions Despite its limitations, our study makes several important contributions to literature on innovation and economic growth at a national level. Whereas most studies on innovation focus on firm-level or enterprise-level innovation, our study analyzes country-level innovation. In addition, it incorporates a comprehensive and large data set from OECD that allows for longitudinal analyses. We also contribute in terms of the methodology of analytics used in the research. This emerging technique offers potential in various domains including innovation. We demonstrate how data-driven analytics can help make informed decisions on innovation and economic growth. The research adds to the empirical studies literature on innovation that deploy an analytic approach. Fig. 14 Number of patent applications and R&D expenditure by sector Raghupathi and Raghupathi Journal of Innovation and Entrepreneurship (2017) 6:4 Page 17 of 20 By identifying a portfolio of economic factors that influence innovation, we offer insights policy makers may call upon to design effective policies targeted toward promoting and encouraging innovation. Our analysis of industries with the most potential for innovation offers benchmarks for effective resource allocation or incentive assignment in fecund industries. Incentives can take the form of subsidies, tax breaks, grants, or business incubation services that facilitate innovation. In addition, our results offer benchmarks for efficient resource allocation among industries. The relationship between R&D expenditure and innovative efforts of a country has been emphasized by endogenous growth models (Romer 1994; Zachariadis 2003). In this regard, we show that while R&D is an important indicator for innovation, only some OECD countries innovate by increasing their investment in R&D. Others promote their innovation through technology spillovers from other OECD countries (Acemoglu and Linn 2004; Wang 2010). These countries utilize the know-how that is generated by other countries (Guloglu and Tekin 2012). This finding does not mean that R&D is not important for long-term growth. Instead, it implies that the measure of R&D cannot be interpreted as a complete measure of innovation: other factors must be considered (Aghion and Howitt 1998). On a socio-economic level, our findings on the association between the standard of living (real minimum wages, labor cost) and innovation suggests that to improve innovation and economic growth, countries need to focus on improving the standard of living in terms of high minimum wages, low labor cost, and better work conditions. A notable contribution of our research lies in the dimension of internationalization and ownership of technology innovation (patents). We show that countries with high foreign ownership of patents have low tax revenues as a percentage of GDP. An exploration of the concept of income from intellectual property (IP) is helpful in interpreting this association further. In general, income from IP is mobile because it has no associated trade costs (Griffith et al. 2014). Thus, patent ownership may be found in locations other than the country in which they were created. Multinational companies, a big source for patents, typically exploit this mobility by locating their intellectual property in low-tax countries (referred to as tax havens) thereby decreasing their tax burden (Lipsey 2010). It's no wonder that countries that see a high proportion of patents owned by foreign residents have grown increasingly concerned about the tax revenue losses arising from such relocation schemes. To address this, some countries have introduced patent boxes to reduce the tax rate on income derived from patents. Belgium, for example, introduced a patent box in 2007, reducing the tax rate from 34 to 6.8%. The Netherlands reduced the tax rate from 31.5 to 10%. In 2008, Luxembourg reduced the rate from 30.4 to 5.9%; and in 2013, the UK introduced a patent box at the rate of 10% reducing the tax rate from 30 to 24% (Griffith et al. 2014). We suggest that countries should address the ownership of patents and encourage more ownership by local residents and less by foreign residents, in order to increase innovation and boost tax revenues that result in economic growth. In terms of education in influencing innovation, we highlight the importance of having an integrated curriculum that offers students the liberal arts skills (analytical, evaluative, critical and creative thinking, and written and oral communication) as well as quantitative and technical skills needed for the workplace. Most employers want Raghupathi and Raghupathi Journal of Innovation and Entrepreneurship (2017) 6:4 Page 18 of 20 employees to have the ability to learn and synthesize new ideas, be reflective and articulate, and have excellent organization and time-management skills. We reinforce the need for governmental policies to focus on enhancing the quality of education to facilitate the knowledge transfer needed for country-level innovation. Proposing a regulatory framework to promote innovation is a challenging task because, in addition to economic growth, this framework has to address social and environmental goals. More theoretical and empirical research is needed. Another important direction for future work is analysis of the impact of other forms of intellectual property-copyrights and trademarks in addition to patentson economic growth and innovation. Funding There was no funding for the research. Availability of data and materials The dataset supporting the conclusions of this article are available in the OECD repository, http://stats.oecd.org/ Authors’contributions Both the authors contributed equally to the manuscript. Both authors read and approved the final manuscript. Competing interests The authors declare that they have no competing interests. Authors’information Viju Raghupathi is presently an Assistant Professor of Business at Koppelman School of Business, Brooklyn College of the City University of New York. She received her PhD in Information Systems from The Graduate Center, City University of New York. Her research interests include innovation, healthcare, business analytics, social media, sustainability, and corporate governance. She has published in Communications of the AIS, Journal of Electronic Commerce Research, Journal of Health and Medical Informatics, International Journal of Healthcare Information Systems and Informatics, Health Policy and Technology, Information Resources Management Journal, and Information Systems Management. Wullianallur Raghupathi is Professor of Information Systems at Gabelli School of Business, Fordham University, New York, Program Director of the M.S. in Business Analytics Program, and Director of the Center for Digital Transformation (http://www.fordhamcdt.org/). He received his PhD in Information Systems from the University of Texas at Arlington. He is co-editor for North America of the International Journal of Health Information Systems & Informatics. He has guest edited a special issue of Topics in Health Information Management (1999) and a special section on healthcare information systems for Communications of the ACM (1997). He has 40 refereed journal publications, several conference proceedings, book chapters, editorials, and reviews including many in healthcare IT. Author details 1 Koppelman School of Business, Brooklyn College of the City University of New York, 2900 Bedford Ave, Brooklyn, NY 11210, USA. 2 Gabelli School of Business, Fordham University, 140 W. 62nd Street, New York, NY 10023, USA. Received: 26 October 2016 Accepted: 31 January 2017 References Acemoglu, D.J. Linn, D. (2004) Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry. The Quarterly Journal of Economics 119 (3):1049–1090. 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