Exploring the cross-country gap in patenting: A Stochastic Frontier Approach

This paper benchmarks the patent activities of a sample of OECD countries against the world frontier and explores the sources of the cross-country differences in patenting (regarded as a proxy for innovation). A patent production frontier is estimated for a panel of 21 OECD countries over the 1990-2002 period using Stochastic Frontier Analysis. Patenting performance for each country is decomposed into basic patenting capacity and patenting efficiency. The gap between Europe and the world leaders in terms of basic patenting capacity remains substantial with little sign of convergence over the sample period. In terms of patenting efficiency, Japan, Germany and Italy have improved their relative position in recent years. The gap in patenting performance between the UK and the world frontier is due to relative underperformance in both patenting capacity and efficiency in patent production. Institutional factors are found to be significantly associated with the patenting efficiency of an economy.