By Francis Chan

SINGAPORE is the seventh most innovative economy in the world, ahead of the likes of Japan and the United States, according to the latest Global Innovation Index (GII).

While Scandinavian nations such as Sweden and Denmark dominated the top 10 rankings, the Lion City emerged as the second most innovative in Asia after Hong Kong, which came in third.

The latest rankings put Iceland on top, followed by Sweden, Hong Kong, Switzerland, Denmark and Finland. Singapore managed to outperform the Netherlands (eighth), New Zealand (ninth) and Norway (10th).

The US - last year's top innovator - fell to 11th place, while traditional powerhouses like Japan (13th), Britain (14th) and Germany (16th) all dropped out of the top 10.

The index - released by the Confederation of Indian Industry and international business school Insead yesterday - measures how specific aspects of an economy can stimulate innovation.

Five so-called 'enabler pillars' were studied. They include institutions, human capacity, general and information and communication technology infrastructure, and market and business sophistication.

Two additional 'output pillars' - scientific and creative - were also considered.

The GII report credited Singapore's successful free-market economy and its open and corruption-free environment for its high ranking.

The Republic, it added, was 'an excellent example of how a visionary and effective government strategy can impact a nation's progress'.

According to Insead's Roland Berger professor of business and technology, Dr Soumitra Dutta, the GII underlines the importance of innovation at a time when the global economy is recovering from one of the worst financial crises in history. 'The study re-emphasises the crucial need for countries to focus on directed pro-innovation policies, to jump-start growth in the medium term and lead to development in the long term,' he said.

The move to encourage business innovation has been a major talking point since Budget 2010 was announced on Feb 22. In his Budget speech, Finance Minister Tharman Shanmugaratnam introduced a new Productivity and Innovation Credit plan, which allows companies to claim additional tax deductions for spending in areas that make them more innovative.

Existing programmes, such as Spring Singapore's Start-up Enterprise Development Scheme and Technology Enterprise Commercialisation Scheme, have been largely successful in helping local firms take their ideas from lab to market.