Innovation policies of Cyprus during the global economic crisis: Aligning financial institutions with National Innovation System

Abstract

Previous research has overlooked the complementarity between National Innovation Systems and financial institutions. This paper extends the literature on National Innovation Systems, arguing that innovation policies should incorporate the particular needs of a nation’s innovation system and the current conditions of that nation’s financial environment. This development is important because the financial environment is malleable and subject to exogenous events, such as the recent global financial crisis. The relationship between a National Innovation System and the financial environment is presented through an analytical framework, which can be used to assess and instigate national innovation policies. The analytical framework is demonstrated using the case of Cyprus, which was on the frontline of the European debt crisis. By integrating the views of leaders from the Cypriot manufacturing and service sectors with widely available reports and indices concerning innovation performance, we demonstrate that the lack of a developed financial environment impedes national innovation performance. This research introduces policy and managerial implications for innovation, especially within the context of underdeveloped national innovation systems, which focus on improving innovation performance by enhancing the availability of financial instruments and the access that entrepreneurs have to them.