Innovation

Management, Policy & Practice

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An international comparison of R&D efficiency

of multiple innovative outputs: The role of the
national innovation system

Chiang-Ping Chen, Jin-Li Hu & Chih-Hai Yang

To cite this article: Chiang-Ping Chen, Jin-Li Hu & Chih-Hai Yang (2011) An international
comparison of R&D efficiency of multiple innovative outputs: The role of the national innovation
system, Innovation, 13:3, 341-360, DOI: 10.5172/impp.2011.13.3.341

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 Copyright © eContent Management Pty Ltd. Innovation: Management, policy & practice (2011) 13: 341–360.

An international comparison of
R&D efficiency of multiple
innovative outputs: The role of the
national innovation system
CHIANG-PING CHEN
Department of Economics, National Central University, Jhongli, Taoyuan County, Taiwan

JIN-LI HU
Institute of Business and Management, National Chiao Tung University, Hsinchu, Taiwan

CHIH-HAI YANG
Department of Economics, National Central University, Jhongli, Taoyuan County, Taiwan

ABSTRACT
This paper compares research and development (R&D) efficiency across nations based on various
output-oriented R&D efficiency indices that are developed by the data envelopment analysis
approach. Empirical results show that nations have similar R & D efficiency in terms of patents and
royalties, while their performance for journal publications is quite different. We then investigate
how the innovation environment, especially in the national innovation system, affects these output-
oriented R&D efficiency indices. R&D intensity, intellectual property rights protection, knowledge
stock, and human capital accumulation all have significantly positive effects on efficiency indices.
Private sector R&D, funded by either foreign sources or funded and performed by private businesses,
plays an important role in improving scores on the output-oriented R&D efficiency index for patents
and for royalties and licensing fees. The R&D intensity performed by higher education institutions
has a positive effect on the journal-oriented R&D efficiency index.

Keywords: output-oriented R&D efficiency index; national innovation system; data envelopment analysis

INTRODUCTION environment by enforcing intellectual property

I nnovation is widely recognized as the primary

driving force of sustainable economic growth1.
Most nations have therefore gradually devoted
more efforts to research and development (R&D)
and have tried to create a favorable innovation
rights (IPR) to promote innovations. Whether
R&D can serve as a major source of competitive
advantage depends on efficient and productive
innovation processes (Werner & Souder 1997).
Using R&D resources inefficiently may result in

1
See Acemoglu et al. (2006) for a comprehensive survey of theoretical as well as empirical literature on the
innovation–economic growth nexus.

Volume 13, Issue 3, December 2011 INNOVATION: MANAGEMENT, POLICY & PRACTICE 341
 Chiang-Ping Chen, Jin-Li Hu and Chih-Hai Yang
slow technological progress and reduce the com-
plementary effect brought on by other innova-
tive activities. Thus, understanding the nature of
R&D efficiency and its determinants is essential
for designing R&D policies that effectively foster
innovation and promote technological progress.
Innovation includes both technological and
non-technological innovation, suggesting that
measures of national innovative outputs are multi-
dimensional, such as patents, royalties and licens-
ing fees (hereafter, RLF), journal articles, and so
on. While patents are widely recognized as a proxy
for innovative output (Griliches 1990), various
decision-making units (DMUs) such as firms,
industries, and nations may produce distinct out-
put more efficiently by locating in particular tech-
nological environments. For instance, some R&D
programs are essentially basic-research-oriented
and have the primary objective of publishing aca-
demic journal papers. These programs are partic-
ularly relevant to non-technological innovations.
Applied-technology-oriented R&D programs can
alternatively aim at licensing or selling technolo-
gies. Hence, it is difficult to compare the R&D
efficiency of various national R&D programs in
the same context, meaning that comparing R&D
efficiency across nations by focusing on one out-
put could lead to a narrow view of national R&D
efficiency.
While this point is well known among econo-
mists, few studies comparing the relative effi-
ciency of R&D activity across nations measure
such relative efficiency by considering multiple
outputs. Lee and Park (2005) and Wang and
Huang (2007) both evaluated R&D efficiency
across nations by considering three outputs (pat-
ents, technology balance of receipts, and journal
articles) and two outputs (patents and SCI and
EI articles), respectively. Lee et al. (2009) used
the Data envelopment analysis (DEA) approach
to measure and compare the performance of
national R&D programs in South Korea. To
consider the heterogeneity of national R&D
programs’ objectives, they included 10 outputs,
mainly academic publications, patents, and
342 INNOVATION: MANAGEMENT, POLICY & PRACTICE
higher education graduates. Although these stud-
ies contain interesting results, some potential
room for improvement remains.
To incorporate various outputs and produce
a single measure for R&D efficiency, the rela-
tive importance of outputs must be determined
and fixed. However, no matter what sets of
weights are applied to the evaluation of vari-
ous innovative outputs, they cannot determine
the individual output-specific R&D efficiency.
Moreover, neither of the above mentioned
studies considered a scenario in which the same
input factors could simultaneously produce
multiple outputs in a national innovation pro-
duction, nor did they control for the influences
of external environments on R&D efficiency,
particularly the role of the national innovation
system (NIS).
Innovation environment is an important fac-
tor that affects the efficiency and productivity of
the innovation process for all kinds of DMUs. A
better innovation environment enables DMUs
to conduct R&D more efficiently and conse-
quently stimulates more innovations, whereas
an inferior one may induce the inefficient use of
R&D resources and result in slower technological
progress. The NIS proposed by Lundvall (1992),
Nelson (1993), and Edquist (1997) focuses on
the interplay among the government, higher edu-
cation institutions, and industries that contrib-
ute to innovative behavior in a specific nation,
which may significantly affect R&D efficiency of
various innovative outputs. Due to differences in
the composition of national R&D and the inter-
play among various innovation performers, an
individual nation has different compositions of
innovative outputs, given the same R&D input.
For instance, the objective of university faculties’
R&D is the publication of more academic papers,
whereas government R&D often focuses on basic
research and pays less attention to patents and
royalties than the private sector.
This paper aims to compare the relative effi-
ciency of R&D across nations and attempts
toww provide the following distinct types of
Volume 13, Issue 3, December 2011

empirical evidence: First, this study provides
new evidence on national R&D efficiency
in terms of various innovative outputs. This
nation-level study can lend implications for
R&D management as well as innovation policy.
Specifically, we provide a more complete picture
of the national R&D performance by measur-
ing R&D efficiency with three innovative out-
puts: patents, RLF, and journal articles. Second
and importantly, by utilizing the concepts of
DEA-computed actual and target outputs, we
define an individual output-oriented R&D effi-
ciency index (OREI), enabling us to assess the
individual R&D efficiency of various outputs.
In evaluating an R&D efficiency score, out-of-
date technology and an inefficient innovation
process both generate an insufficient portion
of production of individual innovative output
which needs to be further adjusted. The amount
of total adjustments, including slack and radial
adjustments, is computed by DEA. We obtain
the target level of individual innovative output
when the amount of total adjustment increases
from the actual individual innovative output and
then define the ratio of actual individual innova-
tive output to target individual innovative out-
put as: the output-oriented R&D efficiency index.
This approach allows us to compare the R&D
efficiency of individual innovative output across
nations. Third, this study further employs the
Tobit model to examine environmental factors
affecting R&D efficiency, especially for the role
of the NIS on impacting the individual OREI.
This remainder of this paper is organized as
follows: section ‘Methodology and Output-
Oriented R&D Efficiency Index’ addresses the
estimating methodology and describes the data-
set used in this study. We first introduce the tech-
nique of DEA and then describe how different
indices of R&D efficiency in terms of innova-
tive outputs are calculated from DEA solutions.
Section ‘Estimation of Output-Oriented R&D
Efficiency Indices’ displays and discusses the
empirical results on various indices of R&D effi-
ciency across nations. In section ‘The Role of the
Volume 13, Issue 3, December 2011
Role of the national innovation system in R&D efficiency
NIS on R&D Efficiency’ we further adopt the
Tobit model to examine the impacts of environ-
mental factors, especially NIS, on influencing
various indices of national R&D efficiency. The
final section contains concluding remarks and
policy implications.
METHODOLOGY AND OUTPUT-
ORIENTED R&D EFFICIENCY INDEX
Methodology of DEA and data
Data envelopment analysis is a mathematical pro-
cedure using the linear programming technique
to assess the efficiencies of DMUs. This approach
constructs a non-parametric piecewise frontier of
DMUs that owns optimal efficiency over datasets
for the comparative efficiency measurement. DMUs
located at the efficiency frontier represent the most
efficient DMUs that generate maximum outputs by
taking a fixed amount of inputs. DEA has two pri-
mary advantages: it does not require a specification of
either the production function form or the weights of
different inputs and outputs, and it provides detailed
information on the efficiency of the unit relative to
specific efficient units used as comparators (Lovell &
Schmidt 1993; Coelli et al. 1998).
Charnes et al. (1978) developed the first DEA
model by assuming constant returns to scale (CRS),
while Banker et al. (1984) proposed another model
by assuming variable returns to scale (VRS). Both
these two models are well known as the CCR and
BCC models in the efficiency literature, respectively.
As the scale of a nation is hard to adjust in the short
run, most existing studies assume an innovation
production with CRS between inputs and outputs,
e.g., Griffith et al. (2006), Hashimoto and Haneda
(2008), Lee and Park (2005), and Parisi et al. (2006).
As the objective of R&D lies in increasing outputs
rather than decreasing inputs, this paper therefore
employs the output-oriented CCR model.
In the output-orientated CRS DEA model,
there are K inputs and M outputs, represented
by the column vectors xi and yi, for each of the
N DMUs. The K × N input matrix X and the
M × N output matrix Y represent the data for all
N DMUs. The output-oriented CRS DEA model
INNOVATION: MANAGEMENT, POLICY & PRACTICE 343
 Chiang-Ping Chen, Jin-Li Hu and Chih-Hai Yang

then solves the following linear programming
problem for firm i in each year:
max φ,
θ ,λ
s.t. − φyi + Y λ ≥ 0
xi − X λ ≥ 0
λ ≥ 0,
where φ is scalar, and λ is an N × 1 vector of
constants.
The value of φ is the inverse of the efficiency score
for the i-th firms, with φ ≥ 1. The value of unity
for φ indicates a point on the frontier and therefore
a technically efficient firm, according to Farrell’s
(1957) definition. A higher value of φ implies a
lower efficiency score. The vector λ consists of the
reference weights of DMU i over all DMUs.
The data utilized in this study make up
a panel dataset of 24 nations, including 16
European nations, 4 Asian nations, and 4 North
and South American nations during the
1998–2005 period2. Based on the innovation
production function proposed by Pakes and
Griliches (1984) and Griliches (1990), this
paper consider R&D as production process
and treats individual nation as a DMU. As
for the output and input variables, we include
three outputs containing patents, RLF, and sci-
entific journal articles and two inputs includ-
ing full-time researchers and technicians and
R&D expenditure. Due to unavailable data on
R&D capital stock in any statistical yearbook
or database, this study thus converts R&D
expenditures into R&D capital stocks using the
perpetual inventory method3.
While patent is the most widely adopted
measure of innovative output, simple counts of
patents filed at an intellectual property office is
likely to be biased due to the home advantage
for patent applications. Thus, we adopt the
number of patents applied for in the European
Patent Office (EPO) and the US Patent and
(1) Trademark Office (USPTO), because both
provide the clearest indication of innovation
performance and can be treated as ‘new-to-the-
world’ innovations4. Moreover, RLF reflect the
ability to sell newly developed and invented
technologies, and they can be treated as one of
a nation’s the direct commercial outputs from
innovation activities. Journal articles pub-
lished in scientific and engineering fields are
considered as another major output of research
and widely used to evaluate the performance
of researchers (OECD 2001). In this study
we tally articles published in journals cover-
ing physics, biology, chemistry, mathematics,
clinical medicine, biomedical research, engi-
neering and technology, and earth and space
sciences. Information concerning outputs and
inputs is collected from the database of World
Development Indicators (WDI, World Bank)
and Main Scientific Technology Indicators
(MSTI, OECD). Table 1 displays the basic sta-
tistics for inputs and outputs.
Construction of the output-oriented
R&D efficiency index
After evaluating the efficiency of 24 nations
through the DEA approach, we can identify the
most efficient point on the frontier as the target
for inefficient DMUs. For the i-th DMU, the dis-
tance from an inefficient point on the frontier by
radially adjusting the level of outputs, φ−1, is called
‘radial adjustment’. Moreover, there exists a sec-
ond stage shift from the projected point to a point

2
The 24 nations include Belgium, the Czech Republic, Finland, France, Germany, Hungary, Ireland, Italy, the Netherlands,
Poland, Portugal, Spain, Romania, Slovenia, the United Kingdom, Israel, Japan, South Korea, the Russian Federation,
Singapore, Argentina, Mexico, Canada, and the United States.
3
Referring to previous studies, we assume a depreciation rate of 15% for R&D capital (Hall & Mairesse 1995) and the
average rate of R&D growth for the initial growth rate (Guellec & van Pottelsberghe de la Potterie 2004).
4
For the pitfalls and advantages associated with equating patent counts with innovation, please see Furman et al. (2002) for
a survey.

344 INNOVATION: MANAGEMENT, POLICY & PRACTICE Volume 13, Issue 3, December 2011
 Role of the national innovation system in R&D efficiency

TABLE 1: SUMMARY STATISTICS OF OUTPUT AND INPUT VARIABLES (1998–2005)

Name Mean SD Maximum Minimum

Output variables
Patentsa 16556.1 43277.0 240902.8 15.71
b
Scientific journal articles 21428.6 39326.1 205320 623
b
Royalty and licensing fees 346.2 925.1 5631.103 0.143
(million US dollars in year 2000)
Input variables
Total R&D manpowera 230297.2 344040.9 1415873 6805
(full-time equivalent units)
R&D expenditure stocksc 137276.3 309116.1 1600433 2080.073
(million US dollars in year 2000)
a
Main Scientific Technology Indicators, Paris: OECD.
b
World Bank: World Development Indicators database. cR&D expenditure flows are collected from Main Scientific
Technology Indicators, Paris: OECD, and then transformed into R&D expenditure stocks by using the perpetual inventory
method.

at the practical maximum level of output on the target output level given its inputs. Therefore,
frontier in the piecewise linear form of the non- three output-orientated R&D efficiency indi-
parametric frontier. The distance of the shift along ces are defined as follows: the patent-oriented
the frontier is called ‘slack’ (Coelli et al. 1998). The R&D efficiency index (PREI), the RLF-oriented
summation amount of slack and radial adjustment R&D efficiency index (RREI), and the Journal-
for outputs is called the amount of total adjust- oriented R&D efficiency index (JREI) for nation
ments, denoting the total amount of outputs that i at time t:
can be adjusted by a DMU to reach its optimal
production efficiency without using additional
Actual Patent Output (i , t )
inputs. Therefore, the total adjustments of output PREI(i , t ) = (2)
should increase while the input level is minimized Target Patent Output (i , t )
so that the DMU operates at the frontier position
Actual RLF Output (i , t )
of production efficiency. The practical maximum RREI(i , t ) = (3)
Target RLF Output (i , t )
output level is thus called the ‘target output level’
for a DMU (Coelli et al. 1998). Actual Journal
When incorporating three outputs into Article Output (i , t )
JREI(i , t ) = . (4)
the innovation production framework of each Target Journal
nation, the target level of the three outputs is cor- Article Output (i , t )
respondingly named the ‘target patent output’,
the ‘target journal articles output’, and the ‘tar- The above output-orientated R&D efficiency
get RLF output’. They represent a practical max- indices range between 0 and 1. When a nation’s
imum level to be used as a target in each nation innovation production reaches the target output
in order to perform at the optimal efficiency of based on the frontier, its R&D efficiency score
output production. As the amount of adjust- achieves 1. Conversely, if the actual innovative
ment increases, it implies a lower efficiency in output of a nation is far below the target output
a national R&D. Thus, if no output adjustment level, then the index approaches to 0, representing
occurs, then this nation is producing at the an extremely low R&D efficiency.

Volume 13, Issue 3, December 2011 INNOVATION: MANAGEMENT, POLICY & PRACTICE 345
 Chiang-Ping Chen, Jin-Li Hu and Chih-Hai Yang
In order to evaluate the overall output-oriented
R&D efficiency of each nation, this paper uses the
average of three output-oriented R&D efficiency
indices as a proxy index for overall national R&D
efficiency. The average output-oriented R&D
efficiency index (AOREI) is defined as follows:
AOREI(i , t ) = Average (PREI, RREI, (5)
and JREI)
Compared with the efficiency index of a sin-
gle innovative output, the above index is more
precise, because it considers various innovative
outputs produced within a nation. Using the
calculated AOREI, the government can consider
how to improve its efficiency through technology
policies. Furthermore, this index is flexible such
that it can incorporate more innovative outputs.
ESTIMATION OF OUTPUT-ORIENTED R&D
EFFICIENCY INDICES
Table 2 displays the results of the average output-ori-
ented R&D efficiency indices for each nation during
the 1998–2005 period. The average overall R&D
efficiency is 0.6857, suggesting a 31.43% potential
for improvement, on average. In terms of the time
trend, it increased steadily from 0.6131 to 0.7354 in
2004 before decreasing to 0.6693 in 2005.
Which nations experienced the best and worst
efficiency in R&D investments? Table 2 displays
that the United Kingdom, Israel, the United
States, and, surprisingly, Hungary reached an
AOREI value of 1 every year, suggesting that they
had the best output-oriented R&D efficiency con-
sidering multiple innovative outputs, compared to
other sampled nations. Finland, Ireland, and the
Netherlands experienced the best overall output-
oriented R&D efficiency and ranked high scores
in specific years. Spain experienced the best overall
output-oriented R&D efficiency during the period
1999–2002, while its efficiency declined sharply
since 2003. On the other hand, nations that
experienced, on average, a low overall R&D effi-
ciency were Poland, Romania, Russia, and Mexico.
Specifically, Romania experienced the lowest
R&D efficiency, 0.2387, on average. Developing
346 INNOVATION: MANAGEMENT, POLICY & PRACTICE
nations usually lack high-quality R&D personnel,
advanced techniques of knowledge management,
and other innovation complements, preventing
them from having better R&D efficiency.
Comparing the regional performance in R&D
efficiency, the bottom of Table 2 shows that
Asian nations seem to have a higher overall R&D
efficiency than their European and American coun-
terparts. As the Asian countries contained in the
dataset include Japan and emerging ‘technology
tigers’, such as Israel, South Korea, and Singapore,
it leads to the result that Asian countries are more
efficient than the other two regions. Furthermore,
it is obvious that the average R&D efficiency of
OECD nations is significantly higher than that
of non-OECD nations. This result is reasonable,
because OECD members are advanced countries
with better innovation management skills.
To further look at individual R&D efficiency
of various innovative outputs, Tables 3–5 respec-
tively display the scores of three output-oriented
R&D efficiency indices. These indices enable us to
understand the strengths and weaknesses of each
nation with respect to various R&D efficiencies.
By comparing the scores of the three specific
R&D efficiency indices, several interesting findings
emerge. First, the average score on the individual
output-oriented R&D efficiency index varies sub-
stantially. While the patent-oriented R&D effi-
ciency is similar (usually a little higher) to that of
overall R&D efficiency, ranging between 0.6131
and 0.7354 in various years, the efficiency scores on
RLF and journals are much lower and higher than
the overall R&D efficiency, respectively. The RLF-
oriented R&D efficiency scores range from 0.5168
to 0.6413, whereas journal-oriented R&D efficiency
scores span the interval between 0.7090 and 0.8589.
These results suggest that the sample nations are
most efficient at producing journal articles, relatively
efficient on patenting, and less efficient in gaining
RLF given the fixed amount of R&D expenditure.
This finding is consistent with the arguments in
Lee and Park (2005) and Wang and Huang (2007)
whereby the computed mean of technical efficiency
is higher when SCI/EI publications are adopted as
Volume 13, Issue 3, December 2011
 Role of the national innovation system in R&D efficiency

TABLE 2: AVERAGE OUTPUT-ORIENTED R&D EFFICIENCY INDEX (AOREI)

Nation OECD Region 1998 1999 2000 2001 2002 2003 2004 2005

Belgium Yes Europe 0.7118 0.7118 0.6748 0.6741 0.7025 0.7095 0.8573 0.7321
Czech Yes Europe 0.4239 0.4434 0.3959 0.4186 0.4652 0.6186 0.4743 0.2953
Finland Yes Europe 0.6622 1.0000 0.9458 1.0000 1.0000 0.9506 0.9737 0.9219
France Yes Europe 0.5351 0.5245 0.5316 0.5370 0.5554 0.5515 0.5239 0.5472
Germany Yes Europe 0.6902 0.6879 0.6753 0.7291 0.7845 0.7224 0.8358 0.8338
Hungary Yes Europe 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Ireland Yes Europe 1.0000 1.0000 1.0000 0.9491 1.0000 0.8333 0.8925 1.0000
Italy Yes Europe 0.6087 0.6548 0.6372 0.6913 0.5796 1.0000 1.0000 0.5893
Netherlands Yes Europe 1.0000 0.9151 0.9515 0.9916 1.0000 1.0000 1.0000 1.0000
Poland Yes Europe 0.2046 0.2321 0.2793 0.3267 0.3896 0.3971 0.3737 0.3927
Portugal Yes Europe 0.3752 0.4067 0.3855 0.3756 0.4393 0.4124 0.4324 0.4366
Romania No Europe 0.1632 0.1925 0.2299 0.3009 0.3226 0.2328 0.2354 0.2324
Russia No Europe 0.3100 0.2598 0.2632 0.2595 0.3894 0.2043 0.1993 0.2187
Slovenia No Europe 0.3774 0.4846 0.6885 0.5552 0.6183 0.9999 1.0000 0.5440
Spain Yes Europe 0.5918 1.0000 1.0000 1.0000 1.0000 0.7177 0.6117 0.5109
UK Yes Europe 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Israel No Asia 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Japan Yes Asia 0.5970 0.6521 0.7296 0.8021 0.7846 0.7836 0.8312 0.7843
S. Korea Yes Asia 0.4282 0.4831 0.5256 0.6055 0.6525 0.7372 1.0000 1.0000
Singapore No Asia 0.5247 0.5843 0.5873 0.7042 0.7028 0.7324 0.9096 0.7123
Argentina No America 0.3208 0.3715 0.4660 0.5193 1.0000 0.4825 0.3737 0.3442
Canada Yes America 0.8342 0.8313 0.8627 0.8371 0.8702 0.8938 0.8911 0.7601
Mexico Yes America 0.3561 0.2552 0.2909 0.2879 0.2766 0.3380 0.2334 0.2065
USA Yes America 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Average Total 0.6131 0.6538 0.6717 0.6902 0.7305 0.7216 0.7354 0.6693
Europe 0.6034 0.6571 0.6662 0.6755 0.7029 0.7094 0.7131 0.6409
Asia 0.6375 0.6799 0.7106 0.7780 0.7850 0.8133 0.9352 0.8742
America 0.6278 0.6145 0.6549 0.6611 0.7867 0.6786 0.6245 0.5777
OECD 0.6677 0.7110 0.7159 0.7348 0.7500 0.7592 0.7739 0.7228
Non-OECD 0.4494 0.4821 0.5392 0.5565 0.6722 0.6086 0.6197 0.5086

the output rather than patents. However, one point researchers are apt to exhaust their energies publish-
worth emphasizing is that journal-oriented R&D ing journal papers even if they do not obtain suf-
efficiency may suffer overestimate bias, because ficient research funding5.
5
Indeed, the publication of journal articles helps researchers to establish their academic reputation and, more importantly,
is the critical criterion for researchers’ career promotion in most nations.

Volume 13, Issue 3, December 2011 INNOVATION: MANAGEMENT, POLICY & PRACTICE 347
 Chiang-Ping Chen, Jin-Li Hu and Chih-Hai Yang

TABLE 3: PATENT-ORIENTED R&D EFFICIENCY INDEX (PREI)

Nation OECD Region 1998 1999 2000 2001 2002 2003 2004 2005

Belgium Yes Europe 0.7613 0.7628 0.7110 0.7140 0.7122 0.7862 0.8573 0.7625
Czech Yes Europe 0.1115 0.3133 0.2369 0.3044 0.3182 0.3863 0.3092 0.2337
Finland Yes Europe 0.8737 1.0000 0.9973 1.0000 1.0000 0.9506 0.9737 0.9597
France Yes Europe 0.6307 0.6622 0.6437 0.6417 0.5926 0.6045 0.5892 0.5709
Germany Yes Europe 0.9309 0.9373 0.9356 0.9603 0.9427 0.8863 0.8691 0.8338
Hungary Yes Europe 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Ireland Yes Europe 1.0000 1.0000 1.0000 0.9491 1.0000 0.8333 0.8925 1.0000
Italy Yes Europe 0.8488 0.9112 0.8877 0.9824 0.6286 1.0000 1.0000 0.6738
Netherlands Yes Europe 1.0000 0.9022 0.9515 0.9916 1.0000 1.0000 1.0000 1.0000
Poland Yes Europe 0.0385 0.0707 0.0941 0.1360 0.2424 0.2347 0.2318 0.2662
Portugal Yes Europe 0.0678 0.2653 0.2025 0.1946 0.2357 0.2577 0.2081 0.2814
Romania No Europe 0.0982 0.0679 0.1056 0.1714 0.2651 0.1645 0.1711 0.1915
Russia No Europe 0.2735 0.1788 0.1957 0.2493 0.3812 0.1571 0.1361 0.1915
Slovenia No Europe 0.2800 0.5342 0.8208 0.5449 0.8228 1.0000 1.0000 0.6475
Spain Yes Europe 0.2592 1.0000 1.0000 1.0000 1.0000 0.7393 0.6950 0.5530
UK Yes Europe 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Israel No Asia 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Japan Yes Asia 0.8431 0.8644 0.9446 0.9933 0.9361 0.9304 0.9410 0.9065
S. Korea Yes Asia 0.7270 0.6172 0.6374 0.6730 0.7977 0.9603 1.0000 1.0000
Singapore No Asia 0.7089 0.8030 0.7899 0.8670 0.8433 0.8677 0.9136 0.6767
Argentina No America 0.2018 0.3272 0.4773 0.4911 1.0000 0.4804 0.3011 0.3022
Canada Yes America 0.9295 0.9820 0.9425 0.8868 0.9037 0.8938 0.8911 0.9170
Mexico Yes America 0.1264 0.1770 0.2445 0.2404 0.2227 0.2980 0.1966 0.2085
USA Yes America 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Average Total 0.6130 0.6823 0.7008 0.7080 0.7435 0.7263 0.7157 0.6740
Europe 0.5734 0.6629 0.6739 0.6775 0.6963 0.6875 0.6833 0.6353
Asia 0.8198 0.8212 0.8430 0.8833 0.8943 0.9396 0.9637 0.8958
America 0.5644 0.6216 0.6661 0.6546 0.7816 0.6681 0.5972 0.6069
OECD 0.6749 0.7481 0.7461 0.7593 0.7518 0.7645 0.7586 0.7315
Non-OECD 0.4271 0.4852 0.5649 0.5540 0.7187 0.6116 0.5870 0.5016

Second, as depicted in Figure 1, the dynam-
ics of various output-oriented R&D efficiency
indices exhibit similar trends except for the
score on RLF. The mean efficiency score on RLF
increased stably from 0.5174 in 1998 to 0.6413
in 2004 and then decreased sharply to 0.5168 in
2005. In contrast, the mean score on the JREI
remained relatively stable during the post-2001
period. Why did these sample nations experience
a sharp decrease in RLF-oriented R&D efficiency

348 INNOVATION: MANAGEMENT, POLICY & PRACTICE Volume 13, Issue 3, December 2011
 Role of the national innovation system in R&D efficiency

TABLE 4: RLF-ORIENTED R&D EFFICIENCY INDEX (RREI)

Nation OECD Region 1998 1999 2000 2001 2002 2003 2004 2005

Belgium Yes Europe 0.6127 0.6099 0.6023 0.5943 0.5829 0.5231 0.8573 0.6095
Czech Yes Europe 0.4892 0.3329 0.1818 0.1756 0.2233 0.7348 0.2286 0.0280
Finland Yes Europe 0.4315 1.0000 0.9973 1.0000 1.0000 0.9506 0.9737 0.9597
France Yes Europe 0.3439 0.2491 0.3075 0.3276 0.4515 0.4454 0.3934 0.4998
Germany Yes Europe 0.5582 0.4694 0.3995 0.5505 0.4679 0.6382 0.7693 0.8338
Hungary Yes Europe 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Ireland Yes Europe 1.0000 1.0000 1.0000 0.9491 1.0000 0.8333 0.8925 1.0000
Italy Yes Europe 0.1287 0.1419 0.1362 0.1090 0.1500 1.0000 1.0000 0.1533
Netherlands Yes Europe 1.0000 0.9216 0.9515 0.9916 1.0000 1.0000 1.0000 1.0000
Poland Yes Europe 0.0892 0.0972 0.1005 0.1627 0.0629 0.0358 0.0204 0.0291
Portugal Yes Europe 0.5167 0.3585 0.2677 0.2041 0.2498 0.1643 0.1118 0.0697
Romania No Europe 0.0887 0.0842 0.0357 0.1861 0.1061 0.0083 0.0107 0.0384
Russia No Europe 0.0831 0.0583 0.0599 0.0437 0.3152 0.0308 0.0210 0.0152
Slovenia No Europe 0.2775 0.2902 0.3840 0.3232 0.2092 0.9998 1.0000 0.0470
Spain Yes Europe 0.5268 1.0000 1.0000 1.0000 1.0000 0.5601 0.2308 0.0919
UK Yes Europe 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Israel No Asia 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Japan Yes Asia 0.5846 0.6504 0.7545 0.9350 0.6599 0.9304 0.9410 0.9065
S. Korea Yes Asia 0.2161 0.3714 0.3951 0.6231 0.3622 0.7309 1.0000 1.0000
Singapore No Asia 0.1562 0.1467 0.1821 0.3785 0.4084 0.4619 0.9015 0.6061
Argentina No America 0.2005 0.2119 0.2355 0.3318 1.0000 0.1346 0.0804 0.0421
Canada Yes America 0.6437 0.5298 0.7031 0.7377 0.8032 0.8938 0.8911 0.4461
Mexico Yes America 0.4710 0.1026 0.0967 0.0571 0.0875 0.2333 0.0687 0.0271
USA Yes America 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Average Total 0.5174 0.5261 0.5330 0.5700 0.5892 0.6379 0.6413 0.5168
Europe 0.5091 0.5383 0.5265 0.5386 0.5512 0.6203 0.5943 0.4610
Asia 0.4892 0.5421 0.5829 0.7342 0.6076 0.7808 0.9606 0.8782
America 0.5788 0.4611 0.5088 0.5317 0.7227 0.5654 0.5101 0.3788
OECD 0.5896 0.6019 0.6052 0.6343 0.6167 0.7041 0.6877 0.5919
Non-OECD 0.3010 0.2986 0.3162 0.3772 0.5065 0.4392 0.5023 0.2915

scores? A closer look at the performance of indi-
vidual nations can help determine potential
causes.
Hungary, the UK, Israel, and the US remained
100% efficient in all measures of innovative
output. However, the efficiency scores of some
nations vary significantly across these indices. As
shown in Table 6, Japan’s mean patent-oriented
and RLF-oriented R&D efficiency scores are
higher, but journal-oriented R&D efficiency

Volume 13, Issue 3, December 2011 INNOVATION: MANAGEMENT, POLICY & PRACTICE 349
 Chiang-Ping Chen, Jin-Li Hu and Chih-Hai Yang

TABLE 5: JOURNAL-ORIENTED R&D EFFICIENCY INDEX (JREI)

Nation OECD Region 1998 1999 2000 2001 2002 2003 2004 2005

Belgium Yes Europe 0.7613 0.7628 0.7110 0.7140 0.8124 0.8193 0.8573 0.8243
Czech Yes Europe 0.6709 0.6838 0.7689 0.7757 0.8542 0.7349 0.8851 0.6242
Finland Yes Europe 0.6814 1.0000 0.8428 1.0000 1.0000 0.9506 0.9737 0.8462
France Yes Europe 0.6307 0.6622 0.6437 0.6417 0.6222 0.6045 0.5892 0.5709
Germany Yes Europe 0.5814 0.6570 0.6908 0.6764 0.9427 0.6426 0.8691 0.8338
Hungary Yes Europe 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Ireland Yes Europe 1.0000 1.0000 1.0000 0.9491 1.0000 0.8333 0.8925 1.0000
Italy Yes Europe 0.8488 0.9112 0.8877 0.9824 0.9601 1.0000 1.0000 0.9407
Netherlands Yes Europe 1.0000 0.9216 0.9515 0.9916 1.0000 1.0000 1.0000 1.0000
Poland Yes Europe 0.4861 0.5283 0.6432 0.6815 0.8636 0.9208 0.8690 0.8829
Portugal Yes Europe 0.5411 0.5963 0.6863 0.7280 0.8323 0.8152 0.9772 0.9587
Romania No Europe 0.3028 0.4255 0.5484 0.5452 0.5964 0.5256 0.5244 0.4674
Russia No Europe 0.5735 0.5424 0.5340 0.4856 0.4719 0.4249 0.4407 0.4495
Slovenia No Europe 0.5748 0.6294 0.8606 0.7976 0.8228 1.0000 1.0000 0.9374
Spain Yes Europe 0.9896 1.0000 1.0000 1.0000 1.0000 0.8536 0.9093 0.8878
UK Yes Europe 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Israel No Asia 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Japan Yes Asia 0.3635 0.4415 0.4897 0.4781 0.7578 0.4899 0.6117 0.5400
S. Korea Yes Asia 0.3416 0.4605 0.5442 0.5205 0.7977 0.5203 1.0000 1.0000
Singapore No Asia 0.7089 0.8030 0.7899 0.8670 0.8566 0.8677 0.9136 0.8541
Argentina No America 0.5602 0.5754 0.6852 0.7351 1.0000 0.8324 0.7396 0.6883
Canada Yes America 0.9295 0.9820 0.9425 0.8868 0.9037 0.8938 0.8911 0.9170
Mexico Yes America 0.4710 0.4861 0.5315 0.5662 0.5195 0.4826 0.4348 0.3840
USA Yes America 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Average Total 0.7090 0.7529 0.7813 0.7926 0.8589 0.8005 0.8491 0.8170
Europe 0.7277 0.7700 0.7981 0.8106 0.8612 0.8203 0.8617 0.8265
Asia 0.6035 0.6763 0.7060 0.7164 0.8530 0.7195 0.8813 0.8485
America 0.7402 0.7609 0.7898 0.7970 0.8558 0.8022 0.7664 0.7473
OECD 0.7387 0.7830 0.7963 0.8107 0.8815 0.8090 0.8756 0.8450
Non-OECD 0.6200 0.6626 0.7364 0.7384 0.7913 0.7751 0.7697 0.7328

score is much lower than its overall R&D effi- licensing rather than publishing journal articles6.
ciency, suggesting that R&D activities in Japan In contrast, developing nations, such as Argentina,
focus more on patent applications and technology Romania, and Russia, and developed countries,
6
Traditionally, Japanese scholars are apt to write articles in Japanese and publish papers domestically rather than submitting
papers to SCI journals. This may explain why the Japanese mean score on the JREI is lower than on the PREI and RREI.

350 INNOVATION: MANAGEMENT, POLICY & PRACTICE Volume 13, Issue 3, December 2011
 Role of the national innovation system in R&D efficiency

In sum, national R&D

activities are composed of
various target-oriented R&D
programs in various sectors
(industry, higher education
institutions, and government),
implying that nations may
target different innovative
outputs. Similar to previous
studies, this paper compares
R&D efficiency across nations
by constructing an overall
index of several innovative
FIGURE 1: TIME TREND OF VARIOUS OUTPUT-ORIENTED R&D EFFICIENCY INDICES outputs. Importantly, our
unique approach also enables
such as the Czech Republic, Poland, Portugal, and us to simultaneously compare
Mexico, have a relatively strong performance on various output-oriented R&D efficiency indi-
academic publications and experience extremely ces across nations and finds that one nation may
poor R&D efficiency on the RREI. Their mean experience significant differences in the relative
efficiency scores on RLF are lower than 0.3, scores and rankings across various output-ori-
causing the RREI to have the lowest mean score ented R&D efficiency indices.
among the various output-oriented R&D effi-
ciency indices. Moreover, Finland, Ireland, and THE ROLE OF THE NIS ON R&D
the Netherlands experience high and similar effi- EFFICIENCY
ciency scores for all of the output-oriented R&D Empirical specification of
efficiency indices. the output-oriented R&D
In terms of rankings on the various R&D effi- efficiency index
ciency indices, most nations seem to have similar Estimates shown in the previous section clearly
rankings in each index, suggesting that although indicate that nations may experience significant
some nations exhibit considerable differences in differences in R&D efficiency for various out-
the magnitude of their mean scores across vari- put-oriented indices. This section examines how
ous indices, their relative efficiency performances environmental factors, especially the NIS, affect
tend to remain consistent throughout the sample the various output-oriented R&D efficiency indi-
period. Different from the majority of sample ces. First, we specify the empirical model of the
nations, few have a distinct R&D focus, inducing AOREI as follows:
divergent performances on the various output-
AOREIit = β0 + β1 IPR protectionit (6)
oriented R&D efficiency indices. For instance,
+ β2 Per-capita GDPit
Italy ranks 13th out of the 24 nations on the over-
+ β3 Human capitalit
all output-oriented R&D efficiency, but its rela-
+ β4 ICT infrastructureit
tive performance on RLF and journals results in
+ β5 Total RD intensityit + εit
rankings of 17th and 8th, respectively. The case
of Spain echoes this tendency as well. In contrast, The dependent variable AOREIit denotes the score
while Japan ranks high in R&D efficiency scores on the average output-oriented R&D efficiency
on patents and RLF (8th for both), its ranking on index of nation i in year t obtained in Table 2. As
journals is a low 21st among the 24 sample nations. for the explanatory variables, we include mainly the

Volume 13, Issue 3, December 2011 INNOVATION: MANAGEMENT, POLICY & PRACTICE 351
 Chiang-Ping Chen, Jin-Li Hu and Chih-Hai Yang

TABLE 6: MEAN SCORES AND RANKING OF VARIOUS R&D EFFICIENCY INDICES, 1998–2005
Nation AOREI Ranking PREI Ranking RREI Ranking JREI Ranking

Belgium 0.7217 12 0.7584 15 0.6240 11 0.7828 13

Czech 0.4419 19 0.2767 19 0.2993 18 0.7497 15
Finland 0.9318 7 0.9694 6 0.9141 7 0.9118 10
France 0.5383 17 0.6169 17 0.3773 16 0.6206 20
Germany 0.7449 11 0.9120 10 0.5859 13 0.7367 16
Hungary 1.0000 1 1.0000 1 1.0000 1 1.0000 1
Ireland 0.9594 6 0.9594 7 0.9594 6 0.9594 6
Italy 0.7201 13 0.8666 11 0.3524 17 0.9414 8
Netherlands 0.9822 5 0.9807 5 0.9831 5 0.9831 5
Poland 0.3245 21 0.1643 23 0.0747 23 0.7344 17
Portugal 0.4080 20 0.2141 22 0.2428 20 0.7669 14
Romania 0.2387 24 0.1544 24 0.0697 24 0.4920 22
Russia 0.2630 23 0.2204 20 0.0784 22 0.4903 23
Slovenia 0.6585 16 0.7063 16 0.4414 14 0.8278 12
Spain 0.8040 9 0.7808 14 0.6762 10 0.9550 7
UK 1.0000 1 1.0000 1 1.0000 1 1.0000 1
Israel 1.0000 1 1.0000 1 1.0000 1 1.0000 1
Japan 0.7456 10 0.9199 8 0.7953 8 0.5215 21
S. Korea 0.6790 15 0.8016 13 0.5874 12 0.6481 19
Singapore 0.6822 14 0.8088 12 0.4052 15 0.8326 11
Argentina 0.4848 18 0.4476 18 0.2796 19 0.7270 18
Canada 0.8476 8 0.9183 9 0.7061 9 0.9183 9
Mexico 0.2806 22 0.2143 21 0.1430 21 0.4845 24
USA 1.0000 1 1.0000 1 1.0000 1 1.0000 1

innovation environment and the composition of
R&D activity among the private sector, academic
institutes, and the public sector within a nation.
Intellectual property rights protection is the
strength of IPR protection, representing a nation’s
legal environment. How do we measure national
differences in IPR protection? We adopt the IPR
index surveyed by the International Institute for
Management Development (IMD). The IMD
survey is related to IPR protection in general.
The question included in the IMD survey asks
whether ‘Intellectual property rights are not
adequately enforced or are adequately enforced’
and the respondents give a score from 0 to 10.
A higher value on the index indicates a stronger
level of protection. The IMD IPR index has been
widely adopted recently and has shown to be
highly correlated with the index of Ginarte and
Park (1997) (e.g., Nunnenkamp & Spatz 2003).
An environment with strong IPR protection
is favorable for firms to devote efforts to R&D
activity and reduce the risk of imitation.
Per-capita GDP is real per-capita GDP that
takes a natural logarithm and is adopted to

352 INNOVATION: MANAGEMENT, POLICY & PRACTICE Volume 13, Issue 3, December 2011
 Role of the national innovation system in R&D efficiency

capture the concept of knowledge stock (Furman + β4 ICT infrastructureit

et al. 2002; Hu & Mathews 2008). Accumulating + β5 Business RD intensityit
more knowledge stock represents superior innova- + β6 Public RD intensityit + εit
tion ability and is critical for future innovations,
The empirical specifications regarding the
contributing positively to R&D efficiency.
determinants of PREI, RREI, and JREI are cor-
Human capital denotes the investment of human
respondingly specified as follows:
capital, which is measured by the percentage of
total education expenditure on GDP. A higher INDEXit = β0 + β1 IPR protectionit (8)
ratio of education investment intensity can + β2 Per-capita GDPit
strengthen the accumulation and the quality of + β3 Human capitalit
human capital and, in turn, enhance R&D effi- + β4 ICT infrastructureit
ciency (Furman et al. 2002). Within the NIS, the + β5 Business RD intensityit
infrastructure of information and communica- + β6 Public RD intensityit + εit
tion technologies (ICT) plays an important role
where INDEX represents one of the above three
in spurring R&D efficiency. This study takes the
output-oriented R&D efficiency indices.
number of personal computers per 100 people in
One critical concept of the NIS is the interac-
a nation as a proxy to determine the relationship
tion between various sectors. To further investigate
between ICT infrastructure and R&D efficiency.
how different funding balances between the pri-
Finally, Total RD intensity represents a national
vate sector and public sector affect the R&D effi-
R&D intensity, measured by the ratio of total
ciency index, we divide the variable Business RD
R&D expenditure to GDP. The NIS approach
intensity into the business R&D intensity fund-
focuses on a textured description of the organi-
ing by the business itself, the public sector, and
zation and patterns of activity that contribute
foreign sources9. Furthermore, we construct two
to innovative behavior in a nation7. The NIS
variables that respectively denote the proportions
approach emphasizes the divergent role played
of the Public RD intensity performed by higher
by different sectors and institutions on innova-
education institutions and government. Finally, to
tion within specific nations. For instance, the
examine the R&D interaction between the private
key component and linkages in the NISs of the
sector and higher education institutions, we con-
United States and Germany are quite different8.
struct the variable that is measured by the product
To differentiate the relative importance of
of the business funding share of higher education
R&D contributed by various sectors within one
and higher education R&D intensity.
NIS, this structure further divides Total RD inten-
The publication of journal articles is not the
sity into R&D intensity contributed by the pri-
main output target of the private sector’s R&D
vate sector (Business RD intensity) and that by the
activity, whereas it is the main focus of high educa-
public sector (Public RD intensity). Equation (6)
tion institutes’ R&D. Therefore, in the specification
can be rewritten as follows:
of the JREI in equation (8), we divide the public
AOREIit = β0 + β1 IPR protectionit (7) sector’s R&D activity into the government R&D
+ β2 Per-capita GDPit expenditure to GDP ratio and the higher education
+ β3 Human capitalit institution R&D expenditure to GDP ratio.

7
See Nelson (1993) for a comprehensive review of the national innovation system.
8
Please see Figure 2 in Furman et al. (2002). Lichtenberg (1993) indicated also that the R&D activity sourced from the
private and public sectors has different impacts on productivity in the innovation process.
9
Foreign funding sources include foreign governments, foreign business enterprises, the European Commission, and other
international organizations.

Volume 13, Issue 3, December 2011 INNOVATION: MANAGEMENT, POLICY & PRACTICE 353
 Chiang-Ping Chen, Jin-Li Hu and Chih-Hai Yang

TABLE 7: DEFINITIONS AND DESCRIPTIONS OF ALL VARIABLES IN THE TOBIT REGRESSION

Variables Definition Mean SD

IPR protection The degree of intellectual property rights protection in a 6.3740 1.7089
nation is collected from World Competitiveness Yearbook
published by IMD. (0–10)
Per-capita GDP The knowledge stock is measured by per-capita gross 4.2814 0.1996
domestic product, collected from World Development
Indicators and then a natural logarithm is taken.
Human capital Human capital investment is measured by the percentage 5.2785 1.4123
of total education expenditure on GDP, collected from
World Development Indicators. (%)
ICT infrastructure Infrastructure of ICT is measured by the number of 30.1958 20.2760
personnel computers per 100 people, collected from World
Development Indicators.
Total RD intensity The overall R&D intensity of a nation is measured by the 0.0263 0.0478
ratio of total R&D expenditure to GDP.
Business RD intensity Business R&D intensity is measured by the Total RD 0.0159 0.0258
intensity performed by the business sector.
Share of private sector The share of private sector funding is measured by the 0.0135 0.0219
funding × Business RD ratio of the business R&D expenditure funded by the
intensity business itself to total business R&D expenditure.
Share of public sector The share of public sector funding is measured by the ratio 0.0014 0.0029
funding × business R&D of the business R&D expenditure funded by the public
intensity sector to total business R&D expenditure.
Share of foreign source The share of foreign source funding is measured by the 0.0009 0.0015
funding × business RD ratio of the business R&D expenditure funded by foreign
intensity sources to total business R&D expenditure.
Public RD intensity Public R&D intensity is measured by the Total RD intensity 0.0104 0.0222
performed by the public sector.
Higher education RD This variable is measured by the Public RD intensity 0.0066 0.0147
intensity performed by the higher education institution.
Business funding share The share of business funding is measured by the ratio 0.0007 0.0017
of higher education RD of the higher education R&D expenditure funded by the
intensity business to total higher education R&D expenditure.
Government RD This variable is measured by the public R&D intensity 0.0038 0.0076
intensity performed by the government.
All detailed information about R&D intensity is collected from Main Scientific Technology Indicators, Paris: OECD.

Table 7 shows the definition and description of
all variables. All nominal variables are transformed
into constant 2000 US dollars by GDP defla-
tors. As mentioned above, the output-oriented
R&D efficiency indices range from 0 to 1, imply-
ing that the data distribution is double censored.
Therefore, we use the Tobit regression to estimate
the effects of environmental factors on efficiency
scores.
Empirical results and discussions
Table 8 displays a series of estimates on the deter-
minants of the AOREI, showing that estimates
are quite similar in various specifications. The
coefficient estimates of IPR protection are signifi-
cantly positive, suggesting that a nation with stron-
ger IPR protection provides a favorable innovation
environment for R&D activity and induces a higher
R&D efficiency compared with other nations,

354 INNOVATION: MANAGEMENT, POLICY & PRACTICE Volume 13, Issue 3, December 2011
 Role of the national innovation system in R&D efficiency

TABLE 8: ESTIMATES OF DETERMINANTS OF AVERAGE OUTPUT-ORIENTED R&D EFFICIENCY INDEX

(1) (2) (3) (4)

Constant −1.6837a (0.6353) −1.7044a (0.6322) −1.4155b (0.6348) −1.5836a (0.5290)

IPR protection 0.0381b (0.017) 0.0330c (0.0179) 0.0214 (0.0185) 0.0342c (0.0182)
b b b
Per-capita GDP 0.4068 (0.1714) 0.4145 (0.1706) 0.3605 (0.1694) 0.4000a (0.1462)
Human capital 0.0553a (0.0142) 0.0589a (0.0145) 0.0592a (0.0141) 0.0511a (0.0150)
ICT infrastructure 0.0035b (0.0013) 0.0027c (0.0014) 0.0023 (0.0014) 0.0026c (0.0014)
Total RD intensity 1.1509a (0.3988)
Business RD intensity 7.2922c (3.0989) 5.1079 (3.8640)
a
Share of private sector 12.7401 (4.6444)
funding × business RD
intensity
Share of public sector −25.4307 (16.6612)
funding × business RD
intensity
Share of foreign source 45.5584 (27.7896)
funding × business RD
intensity
Public RD intensity −6.0380 (4.4734) −9.3519c (5.2265) −49.5137a (18.4882)
Higher education RD 55.3183b (25.8728)
intensity
Business funding share 126.0489b (49.0608)
of higher education RD
intensity
Adj. R-square 0.6184 0.6306 0.6510 0.6688
Figures in parentheses are standard error. Notationsa, b, and c represent significance at the 1, 5, and 10% levels,
respectively.

ceteris paribus. The coefficients of Per-capita GDP
and Human capital are significantly positive at a
conventional statistical level, indicating that the
more knowledge stock and the higher the invest-
ment of human resources a nation has, the higher
its R&D efficiency is, on average. Furthermore, the
technological infrastructure also has a positive and
significant parameter in most estimates.
Focusing on the impacts of R&D performed
by various sectors, column 1 shows that the
estimated coefficient of Total RD intensity is
positive and significant at the 1% statistical
level. This result suggests that a nation devot-
ing more efforts to R&D activity in terms of
R&D intensity reaches a better performance
on overall R&D efficiency. However, estimates
in column 2 seem to indicate that the R&D
efficiency-enhancing effect is brought on mainly
by R&D performed by the private sector rather
the than by the public sector, because the esti-
mated coefficients of Business RD intensity are
significantly positive whereas the estimated coef-
ficient of Public RD intensity is not significantly
positive. Public sector R&D usually is more
basic-research-oriented and aims to develop new
technologies to advance industrial technologi-
cal capability rather than applying for patents,
acquiring licensing fees, and publishing journal
articles. Thus, given the fixed expenditure on
R&D activity, a nation with a higher proportion
of R&D expenditure by the private sector will
reach a higher R&D efficiency.

Volume 13, Issue 3, December 2011 INNOVATION: MANAGEMENT, POLICY & PRACTICE 355
 Chiang-Ping Chen, Jin-Li Hu and Chih-Hai Yang
How does the interaction between the private
and public sectors affect R&D efficiency? Results in
column 3 show that among various funding sources
of private R&D, only a higher proportion of R&D
contributed by private enterprises themselves posi-
tively contributes to R&D efficiency. In contrast,
as shown in columns 3 and 4, R&D intensity that
includes a higher proportion of public R&D nega-
tively impacts overall R&D efficiency. However,
when public R&D is composed of a higher propor-
tion of academic R&D, it exhibits a positive impact
and improves R&D efficiency. This result may arise
from the fact that academic R&D usually pro-
duces many journal articles, which in turn induce a
higher average score on the output-oriented R&D
efficiency index (AOREI). Importantly, the coeffi-
cient of the business funding share of higher educa-
tion R&D intensity is significantly positive at the
1% statistical level, suggesting that the interaction
between private and academic R&D can positively
influence overall R&D efficiency.
Estimates in the previous section indicate that
some nations perform quite differently on the
assorted output-oriented R&D efficiency indices,
because their national R&D compositions (pri-
vate, government, and higher education institu-
tions) vary considerably and have specific-targeted
innovative outputs. This result implies that the
relative share of R&D expenditure contributed
by the various R&D performers and their interac-
tions may play distinct roles in influencing scores
on the different output-oriented R&D efficiency
indices. To examine how the NIS differenti-
ates among individual R&D efficiency indices,
Table 9 presents estimates on the determinants of
the PREI and the RREI. Moreover, Table 10 dis-
plays the estimates of determinants of the JREI.
While the estimates of determinants for the
patent-oriented and RLF-oriented R&D efficiency
indices are quite similar, some points of compari-
son are worth noting. First, the proxy of knowledge
stock (Per-capita GDP) exhibits a positive sign on
influencing the patent-oriented and RLF-oriented
R&D efficiency indices, but its impact is significant
only on patents. Accumulated knowledge capital is
356 INNOVATION: MANAGEMENT, POLICY & PRACTICE
particularly relevant to the development of new
technologies and applications for patents. On the
other hand, firms generally license mature rather
than newly developed technologies to other firms,
causing knowledge capital to have relatively slight
impacts on RLF. Second, a national R&D intensity
moving toward a higher proportion of private R&D
can improve patent-oriented and RLF-oriented
R&D efficiency indices, ceteris paribus. This result
is economically intuitive since patents and RLF are
the primary targeted outputs of the private sector’s
R&D. Third, the main efficiency-improving effect
on the patent-oriented and RLF-oriented R&D
efficiency indices seems to be attributed to R&D
activity produced by private businesses themselves
and the interaction between business and foreign
funding sources. Fourth, a higher proportion of
public R&D lowers efficiency in patents and RLF,
because public R&D expenditure is usually not
aimed at patent creation and royalties and licens-
ing fee collection, but more toward the provision
of public goods. Conversely, a higher proportion of
higher education R&D expenditure helps improve
the efficiency of patents and RLF as part of their
performance. Similarly, an increase in the R&D
expenditure donated by private enterprise to higher
education institutions also helps promote the effi-
ciency in patents and RLF. As a result, when private
enterprises and higher education institutions con-
stitute a major part of national R&D efforts, R&D
efficiency will improve, because both of these sec-
tors include patents as well as RLF as major por-
tions of their R&D outputs.
As for the determinants of the JREI, results in
Table 10 show that the estimates exhibit different
and interesting findings compared with estimates
in Table 9.
The coefficient of IPR protection is not sig-
nificant from zero in all estimates, suggesting that
the legal environment of innovation in terms of
IPR protection is not particularly relevant to
journal-oriented R&D efficiency performance.
Based solely on this finding, we cannot claim
that IPR protection is not important, because we
attribute this result to the distinct technological
Volume 13, Issue 3, December 2011
 Role of the national innovation system in R&D efficiency

TABLE 9: DETERMINANTS OF PATENT-ORIENTED AND RLF-ORIENTED R&D EFFICIENCY INDICES

Dependent variable Patent-oriented R&D efficiency index RLF-oriented R&D efficiency index

Independent (1) (2) (3) (4) (5) (6) (7) (8)

variables

Constant −2.7977a −2.8371a −2.5783a −2.8910a −1.4609c −1.5272c −0.9069 −1.3727c

(0.7293) (0.7116) (0.7174) (0.5887) (0.8258) (0.8137) (0.8003) (0.7589)
IPR protection 0.0449b 0.0348c 0.0228 0.0364c 0.0641a 0.0555b 0.0304 0.0582b
(0.0205) (0.0202) (0.0209) (0.0194) (0.0231) (0.0230) (0.0232) (0.0253)
Per-capita GDP 0.6897a 0.7045a 0.6586a 0.7283a 0.2794 0.3042 0.1852 0.2866
(0.1968) (0.1921) (0.1914) (0.1648) (0.2223) (0.2192) (0.2133) (0.168)
Human capital 0.0297c 0.0372b 0.0370b 0.0311c 0.0535a 0.0562a 0.0595a 0.0454b
(0.0163) (0.0165) (0.0162) (0.0167) (0.0178) (0.0176) (0.0169) (0.0185)
ICT infrastructure 0.0041b 0.0025 0.0019 0.0024c 0.0044b 0.0030c 0.0021 0.0029c
(0.0016) (0.0016) (0.0016) (0.0014) (0.0017) (0.0018) (0.0017) (0.0017)
Total RD intensity 1.0635b 1.0910b
(0.4575) (0.5106)
Business RD intensity 13.8520a 10.0608b 11.6007b 8.2133c
(4.4688) (4.1964) (4.6943) (4.3017)
Share of private 19.3532a 23.8083a
sector funding × (5.2995) (5.6011)
business RD intensity
Share of public −14.2289 −59.9024a
sector funding × (18.8578) (20.9333)
business RD intensity
Share of foreign 63.7980b 94.8598a
source funding × (31.8758) (34.2663)
business RD intensity
Public RD intensity −13.7646a −18.3961a −55.4598a −11.1468b −18.7328a −74.0491a
(5.1066) (5.9561) (19.3105) (5.4002) (6.3482) (21.2480)
Higher education RD 48.1371c 79.4647b
intensity (27.3537) (31.0469)
Business funding 190.3844a 189.1861a
share of higher (52. 9471) (60.4375)
education RD
intensity
Adj. R-square 0.5639 0.5966 0.6100 0.6388 0.4768 0.4986 0.5561 0.5458
a, b c
Figures in parentheses are standard error. Notations , and represent significance at the 1, 5, and 10% levels,
respectively.

environment for publishing journal articles. While
the infringement of patents and copyrights is prev-
alent in the world, especially in some developing
nations, cases of plagiarism are rare in academic
publications. In practice, the standard of aca-
demic ethics is rigorous and extremely critical for
scholars. Few scholars attempt to violate academic
ethics, because this type of behavior could destroy
a scholar’s academic career. Therefore, the legal
environment of IPR protection has a weaker influ-
ence on journal-oriented R&D efficiency.
While overall R&D intensity is associated with
a positive and significant coefficient as shown
in Table 9, the impacts of various components

Volume 13, Issue 3, December 2011 INNOVATION: MANAGEMENT, POLICY & PRACTICE 357
 Chiang-Ping Chen, Jin-Li Hu and Chih-Hai Yang
TABLE 10: THE DETERMINANTS OF JOURNAL-ORIENTED R&D EFFICIENCY INDEX (JREI)
(1)
Constant −0.9916c (0.5311)
IPR protection −0.0020 (0.0149)
Per-capita GDP 0.3184b (0.1434)
a a
Human capital 0.0749 (0.0121)
ICT infrastructure 0.0016 (0.0011)
Total RD intensity 1.2131a (0.3387)
Business RD intensity
Public RD intensity
Government RD intensity
Higher education RD intensity
Adj. R-square 0.8042
Figures in parentheses are standard error. Notations a, b, and c represent significance at the 1, 5, and 10% levels,
respectively.
appear to have entirely different influences on JREI
compared with their influences on the other two
indices. As shown in column 2 of Table 10, the
coefficients of Business and Public RD intensity are
significantly negative and positive, respectively. This
result indicates that, given a fixed R&D intensity, a
nation with a lower proportion of private R&D and
a higher proportion of public R&D will achieve a
higher score on the JREI, on average. Private R&D
activity purely aims at appropriating the monopoly
advantages brought on by innovations and there-
fore focuses primarily on patents and RLF that
have pecuniary benefits. On the other hand, pub-
lic R&D generally targets on basic research and/
or aims to develop technology to meet the needs
of industrial upgrading. Thus, public R&D may
aggressively publish journal articles rather than
apply for patents. When the allocation of national
R&D activity concentrates more on public R&D,
it will have a positive influence on JREI.
The estimated coefficient of Higher education
RD intensity in column 3 of Table 10 is positive
and significant at the 5% statistical level, whereas
the coefficient attached to Government RD inten-
sity is negative and not significant. As discussed in
the previous section, some nations, e.g., the Czech
358 INNOVATION: MANAGEMENT, POLICY & PRACTICE
(2) (3)
−0.9546c (0.5095) −0.8223 (0.5296)
0.0048 (0.0146) 0.0049 (0.0145)
0.3071b (0.1375) 0.2820b (0.1401)
0.0685 (0.0685) 0.0649a (0.0121)
0.0027b (0.0011) 0.0027b (0.0011)
−7.6468b (3.0866) −7.4176b (3.1017)
11.2545a (3.5509)
−2.1936 (15.4566)
17.8610b (8.1873)
0.8676 0.8739
Republic, Poland, Romania, and Russia, have a rel-
atively strong performance on the JREI and poor
R&D efficiency on the PREI and RREI. These
nations have a long tradition of well-respected
higher education systems relative to their industrial
sectors. Their governments ladle a lot of funding
into universities every year, inducing a relatively
higher R&D efficiency score on journal articles
compared with the other two innovative outputs.
CONCLUDING REMARKS AND POLICY
IMPLICATIONS
The importance of innovation on sustainable
economic growth is widely analyzed and recog-
nized in academic research. Therefore, to reach
stable and sustainable growth, most nations have
aggressively devoted more and more efforts toward
R&D activity. Specifically, utilizing R&D expen-
diture efficiently is an essential step to achieve
this goal. This study compares R&D efficiency
across nations. Each national R&D activity is
composed of various sectors (private, government,
and higher education institutions), implying that
there are different targeted innovative outputs in
various R&D programs. Unlike previous studies
through the DEA approach that focus on only one
Volume 13, Issue 3, December 2011
 Role of the national innovation system in R&D efficiency
innovative output and a single index, this study
develops a new methodology to simultaneously
assess the individual R&D efficiency of multiple
innovative outputs, including patents, RLF, and
journal articles. Using a panel dataset of 24 nations
over the 1998–2005 period, we first compute vari-
ous output-oriented R&D efficiency indices by
using DEA and then examine the determinants of
various output-oriented R&D efficiency indices,
especially for the role of the NIS.
Empirical findings show that most nations expe-
rienced similar R&D efficiency in terms of their
patents and their RLF, while their performance on
journal publication varied greatly. Hungry, Israel,
the United Kingdom, and the United States pre-
sented the optimal output-oriented R&D efficiency
across the various indices during the sample period.
Conversely, Romania, Russia, and Mexico performed
the worst in each of the R&D efficiency indices.
Transition economies, such as Argentina, Romania,
and Russia seemed to have higher efficiency in
publishing journal articles than in applying for pat-
ents and licensing their technologies. Japan is more
accomplished at applying for patents and licensing its
technologies than other nations relative to publishing
journal articles.
This study further finds that the higher the
proportion of private R&D a nation has, the
higher the nation scores are for the overall OREI,
the PREI, and the RREI. However, this situation
reverses when we assess the nations’ scores on the
JREI. This finding reflects the intrinsic difference
in targeted innovative outputs between private
and public (especially higher education institu-
tions) R&D activities. The interactions between
private R&D and foreign-sourced R&D and
between private and academic R&D are found
to be positively relevant to most R&D efficiency
indices. Finally, we find that the higher the pro-
portion of higher education R&D a nation has,
the higher the nation scores on the JREI.
This study derives several key policy implications
for innovation. First, because the targeted innova-
tive outputs of R&D provided by various sectors
differ considerably, national-level R&D efficiency
Volume 13, Issue 3, December 2011 INNOVATION: MANAGEMENT, POLICY & PRACTICE
cannot be properly evaluated using a single index.
When a nation attempts to assess its R&D effi-
ciency performance, it should acknowledge the
difference in innovative outputs across sectors.
Second, since private R&D funded by foreign
sources plays an important role in improving scores
on the OREI for patents and RLF, the government
should cultivate a nurturing environment for inno-
vation, such as stronger IPR, higher quality human
resources, and better technological infrastructure,
in order to attract large multinational enterprises to
establish R&D labs or to collaborate with domestic
firms. Third, because R&D intensity performed by
higher education institutions may have a positive
impact on the JREI, the government should con-
tinuously support universities’ R&D. Moreover,
because universities are widely recognized as effec-
tive incubators for high-tech start-ups, measures to
encourage the collaboration between private enter-
prise and universities are critical.
ACKNOWLEDGEMENTS
The authors are indebted to an editor and anony-
mous referees for their helpful comments. Partial
financial support from Taiwan’s National Science
Council (NSC99-2410-H-009-063) is very much
appreciated.
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Received 06 June 2010 Accepted 12 July 2011

N O W AVA I L A B L E
Sustainability Innovators: Agents of Change on the Sunshine Coast
by Dana C Thomsen – Pages: vi+74 – ISBN 978-1-921214-49-3
The Sunshine Coast is a contested Australian landscape that has retained much of its natural beauty
and distinctiveness in the face of successive waves of development. This is in no small part due to
the active and vibrant communities that form its social fabric, and the vision and energy of a small
number of passionate individuals prepared to stand out from the crowd and to be advocates for
sustainability.
This collection of case studies is also available in print and online as a course reader.
www.e-contentmanagement.com

360 INNOVATION: MANAGEMENT, POLICY & PRACTICE Volume 13, Issue 3, December 2011