Innovation Measurement Problems: An Illustrative Case of the Baltic Countries

Abstract

The chapter bridges two approaches for the assessment of national innovation performance based on the European Innovation Scoreboard (EIS) composite indicators and on the analysis of factors that may be behind these indicators. The main focus of the study is on analyzing innovation performance of the Baltic States – the small countries that have similar post-socialist path dependence. Our aim is to explore what factors have been most influential in developing the different innovation performance of the countries and whether the innovation measurement indicators also capture these differences. Our analysis shows that remarkable measuring problems are the inability to sufficiently capture the quality of human capital, the small economy effect, that is, high dependence on single enterprises of a sector, and data availability issues. Some self-reporting indicators may also bias the measurement results. Still, Estonian innovation performance seems to be ahead of the other two Baltic countries; the main impulses have been successful attraction of foreign investments and the Estonian tax policy, and also possible positive spillover effects from the Nordic neighborhood, particularly from Finland and Sweden.