Latin America’s Innovation Potential Is Largely Untapped

New policies in Latin America could kick-start the global economy.

Lorena Rivera León | United Nations University

Chile, Costa Rica and Mexico were Latin America’s big winners in the 2017 edition of the Global Innovation Index (GII), which ranks the world’s economies on their innovative capabilities (innovation inputs) and measurable results (innovation outputs).

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Innovation is now widely recognized as a central driver of economic growth, prosperity and development.

The GII report, launched in June at the United Nations Headquarters in Geneva, Switzerland, was co-authored by Cornell University, INSEAD and the World Intellectual Property Organization.

Innovation is now widely recognized as a central driver of economic growth, prosperity and development. The GII aims to provide countries with a snapshot of their innovation ecosystem, helping them to identify weaknesses and strengths.

Latin America in the middle

In Latin America, as elsewhere, formulating effective innovation policies could serve as a potential antidote to regional and global economic and political uncertainties. Although the region’s overall scores increased 2 percent over last year’s numbers, countries in the region are still working to meet their innovation potential.

Out of 127 countries ranked, Chile came in 46th place, Costa Rica 53rd and Mexico 58th. Switzerland topped the list of the world’s most innovative economies, followed by Sweden and the Netherlands.

None of the region’s countries outperform in innovation relative to their level of development (as India and Vietnam did, for example), and the largest countries in the region have not seen improvements in their rankings.

The region lags in terms of both inputs that spur innovation – including increases in investment, science and technology graduates, availability of credit markets and the like – and in innovation outcomes, such as patent applications filed and scientific articles published.

Chile remains the number one economy in Latin America, as it has for the past four years, though it fell two positions in the overall rankings since 2016.

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Chile’s improvements in 2017 lie mainly in its knowledge and technology outputs.

Its improvements in 2017 lie mainly in its knowledge and technology outputs, particularly in the number of new firms created, where it ranks 14th in the world with eight new company registrations per thousand population.

This puts Chile in the good company of places like Bulgaria (with 8.9 per 1,000) and Iceland (with 9.5 per 1,000).

Chile is tenth in the world for foreign direct investment (FDI) net outflows (meaning the amount invested that Chilean residents make in foreign countries). It represented 5 percent of GDP in the 2013 to 2015 period, putting Chile’s FDI output above that of countries like Canada and Norway.

Strong contenders: Costa Rica and Mexico

Costa Rica is the second-most innovative economy in Latin America and 53rd worldwide, down eight positions from its 2016 level. This is the seventh year that this small Central American country has ranked among the region’s three best-performing economies.

Its strengths lie primarily in business sophistication and creative outputs. Costa Rica is first in the world in cultural and creative-services exports like advertising, market research and public opinion polling services and fifth in the number of researchers in the business enterprise sector.

In the exports of services based on information and communication technologies, called ICT, Costa Rica also ranks top worldwide, tied with India, Ireland and Israel.

In 2015, Costa Rica’s ICT services exports represented 14.6 percent of its total trade.

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In 2015, Costa Rica’s ICT services exports represented 14.6 percent of its total trade.

Mexico has also done relatively well in innovation this past year, rising three spots to become the 58th most innovative economy worldwide.

It ranks seventh among 62 middle-income economies in the quality of innovation, a group that includes China, India and Brazil. In this indicator, Mexico performs above average in the quality of its domestic universities and the international impact of its local publications.

Not only did Mexico’s gross domestic expenditure in research and development (known as GERD) and its business-enterprise expenditures in research and development (known as BERD) not fall during the 2008-2009 world financial crisis, they’ve actually intensified since 2010.

GERD represented 0.55 percent of GDP in 2015, fully 34 percent higher than the 2008 levels. BERD was also 22 percent higher in 2015 relative to crisis-era levels.

Mexico, which is projected to become the world’s 16th-largest economy in 2017, shows itself to be an active contributor to global value chains, including in high-tech sectors, with imports like aerospace equipment and scientific instruments, among others, representing 18.4 percent of total Mexican trade in 2015.

Brazil as an innovation actor

Brazil remains an important innovation actor in Latin America. This year, it came in 69th in the world and 7th in the Latin American region, ceding ground to economies like Panama and Uruguay.

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Brazil made large gains in human capital and research, improving in expenditures in education.

Brazil made large gains in human capital and research, improving in expenditures in education, and the average score of the top three Brazilian universities at the QS university ranking in 2016 ranked 24th worldwide, above countries like Austria and Italy.

Unleashing potential

This year’s results show that although Latin American and Caribbean countries are increasingly investing in research and development and innovation, such spending doesn’t necessarily translate into innovation outputs like patents, scientific publications, quality certificates, high-tech products, trademarks and the like.

This, in turn, is hampering the efficiency of the region’s innovation systems. With nearly 650 million people and a combined GDP of $5.2 trillion, Latin America and the Caribbean has the potential to become a greater source of global intellectual production and high-tech manufactured products, among other possible areas for growth.

To unleash their shared power, countries in the region must emphasize environments that spur creativity domestically, as well as push more research and development and innovation at the regional level.

This article first appeared on the The Conversation and was republished with permission.

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Lorena Rivera León is a Belgian-Mexican economist and PhD research fellow at UNU-MERIT.

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