Economic uncertainty and innovation capability: Corruption as a barrier to innovation output

Abstract

Economic uncertainty reduces National Innovation Capability (NIC), primarily by suppressing creative output as firms defer investment. Analysing 107 economies from 2013 to 2023, we find that corruption independently undermines knowledge output, compounding the effects of uncertainty. Business and market sophistication mitigate uncertainty, robust innovation linkages, and deep domestic markets sustain innovation activity. This study contributes by isolating the distinct harm of corruption to knowledge production (as opposed to uncertainty's broader impact on NIC) and identifying institutional and market safeguards. Policymakers must combat corruption to protect innovation systems while fostering sophisticated business ecosystems to buffer uncertainty.