Innovation performance across Europe

The innovation performance of firms is primarily determined by their own innovative activities and the interaction with their innovation-related environment. This environment typically differs among countries. We assess empirically these differences on firms' innovation performance. To that end we first estimate the relationship between an aggregate innovation input measure and an aggregate innovation output measure, thereby explicitly controlling for structural differences between countries. We then consider the extent to which firms located in a particular country perform better or worse than this estimated benchmark performance. The analysis is based on a panel dataset that we have constructed from Eurostat's first and second Community Innovation Survey. In order to control for possible data contamination we employ an outlier-robust estimator. It appears that among the fourteen countries considered Italy, Germany and Ireland offer an environment that facilitates most the transformation of innovation-related inputs into commercial outputs while the environment in Denmark is the least facilitating.