Innovation and prosperity: Evidence from countries bydevelopment level

Innovation has increasingly become essential for promoting economic growth, enhancing competitiveness, and addressing societal challenges such as poverty, inequality, education, health, and environmental sustainability. In a rapidly growing global economy, innovation not only expands technological advancement but also acts as a key driving force that accelerates social progress and improves prosperity. Innovation has the potential to improve living standards, create employment opportunities, and improve overall welfare by fostering creativity, productivity, and problem-solving abilities. Countries that effectively manage the economic and social impacts of innovation will achieve more resilient and competitive economic structures. Prosperity plays a crucial role in fostering innovation by creating an environment where individuals and firms can take risks, invest in research and development, and pursue creative endeavors without the obligation of meeting basic survival needs. A strong foundation of prosperity supports the development of human capital, which is essential for maintaining a country's capacity for innovation. This mutual relationship between innovation and prosperity is of varying importance for countries at different stages of development. When developed, developing, and underdeveloped countries are taken into consideration, each faces different challenges and has different opportunities in utilizing innovation to enhance prosperity. Understanding how innovation and prosperity support each other in these diverse contexts is crucial for creating policies that promote sustainable development, social inclusion, and long-term well-being on a global scale. Despite the widely accepted importance of innovation for economic growth, there is a significant gap in the current literature regarding the mutual relationship between innovation and prosperity at different stages of economic development. Existing studies mostly focus on innovation in developed countries, neglecting how innovation affects prosperity outcomes in underdeveloped countries or how prosperity components contribute to innovation in different economic contexts. This thesis aims to fill this gap by identifying the key innovation components that influence prosperity and the prosperity components that drive innovation, providing a comprehensive understanding of how these dynamics differ across various levels of economic development. To achieve this, a methodological framework including Tree Augmented Naive (TAN) Bayesian Networks, Partial Least Squares Structural Equation Modeling (PLS-SEM), and Importance-Performance Map Analysis (IPMA) is employed. These methods enable a comprehensive analysis of data from the Global Innovation Index (GII) and the Legatum Prosperity Index (LPI), providing detailed insights into how innovation and prosperity interact in different economic environments. The findings reveal that for developed and developing countries, institutions, creative outputs, and knowledge and technology outputs are the most influential innovation components affecting prosperity. On the other hand, for underdeveloped countries, institutions, infrastructure, and creative outputs are the most significant innovation components affecting prosperity. The most influential components of prosperity on innovation for developed and developing countries are social capital, infrastructure and market access, and enterprise conditions. For underdeveloped countries, education, governance, and economic quality are the most influential components of prosperity. Based on the findings, the study emphasizes the necessity of addressing innovation and prosperity policies together for sustainable development and high levels of well-being, and the importance of adapting these policies according to the countries' levels of development.