Optimism fuels national productivity and innovation

A study of 42 countries over a 20-year span found one factor had a significant impact on investment in research and development. Economic optimism plays a crucial role in boosting national productivity and research and development, according to a new study from the University of Sydney Business School.

The research, published in the Journal of Innovation & Knowledge, examined the impact of both consumer and producer optimism. It found producer optimism had a positive impact on research and development (R&D) productivity but, on its own, did not yield more innovation outcomes.

Researcher Dr. Danielle Kent said the study is the first of its kind to demonstrate a link between optimism and productivity at a macro-economic level.

“Our research suggests that optimism is important for orchestrating a productive and innovative economic environment. Optimism leads to greater country productivity and innovation through greater investment and a more productive workforce,” said Dr. Kent.

The sample consisted of all 38 members of the Organization for Economic Co-operation and Development (OECD) as well as Brazil, China, Russia and South Africa. The data spanned from 2000 to 2020, during which time the surveyed countries represented nearly half of the global GDP.

Producer optimism, as measured by business confidence indices, saw an increase in the number of researchers involved in R&D and boosted total factor productivity—a measure of how efficiently inputs are converted into outputs.

The impact of producer optimism was 33% greater than that of consumer optimism, suggesting policies aimed at improving business confidenlce are more likely to have a positive impact on a nation’s innovation ecosystem.

Accounting for each country’s income level, the study found medium-income countries benefit more from an optimistic setting than high-income countries. It also found that optimism on its own doesn’t lead to more innovation outcomes, such as patents.

“Optimism creates a fertile ground for innovation by encouraging more R&D activity and boosting productivity, but the quality and quantity of outcomes may still depend on other factors,” said Dr. Kent.

“Our research highlights the importance of creating a balanced environment where producer optimism is supported by other innovation-enhancing policies such as targeted support for R&D, technological development and entrepreneurship.”