The Global Innovation Index, a ranking of 130 countries released yesterday, calls the US the world's number one innovator. The index was created by Soumitra Dutta, a professor at French business school INSEAD, along with New Delhi based non-profit organization The Confederation of Indian Industry.

The global index ranks Germany second, Sweden third, the UK fourth and Singapore fifth. Contrary to what some might expect, China comes in relatively low at number 37, while India stands at number 41.

The ranking is based on indices such as the number of internet users in a nation, the ease of doing business and the stability of banks (that score alone makes surprising that the U.S. tops the list). Every factor is then categorized as either an input or an output, with inputs indicating how conducive countries are to stimulating innovation (these include institutions and policies, human capacity, infrastructure, technological sophistication, business markets and capital). The outputs indicate how effectively countries translate innovation into benefits - like knowledge, competitiveness and wealth.

Everyone agrees that innovation is crucial for the US to dig itself out of the current economic hole. However, innovation is a largely subjective concept. And lately the US is coming under internal criticism for its lack of emphasis on innovation. Last year, Silicon Valley entrepreneur and former CTO of Cisco, Judy Estrin, stated that the US is suffering from "a national innovation deficit." And Vinton Cerf, the chief Internet evangelist at Google said, "There is a remarkable telescoping in of vision and an unwillingness to make long-term bets." In 2005, the National Academies published a report showing that the US government's financing of research in the physical sciences was 45 percent less in 2004 than in 1976.

Do rankings such as the Global Innovation Index influence corporate investment decisions? Not much, says Jacob Koshy of Livemint. In India for instance, over the last few years, several large multinationals have made significant investments in research centers.