Building Ireland’s next wave of innovation

Dr Clare Guy examines the new OECD Rankings, explores insights from the Innovation Index and makes the case for increasing the R&D Tax Credit rate

A bunch of lightbulbs hanging from the ceiling with one bulb lit

The Entrepreneurial Ecosystem Diagnostics report published recently by the Organisation for Economic Co-operation and Development (OECD) and Ireland’s Innovation Index 2025 highlight both the strengths and challenges of the nation’s innovation landscape.

As the EU’s Start-up and Scale-up Strategy promises transformative changes, the need for targeted policies, such as a new Innovation Tax Credit, becomes increasingly apparent.

The OECD’s entrepreneurial ecosystem

Ireland’s entrepreneurial landscape has recently come under the spotlight with the release of a new OECD report earlier this summer.

In a step toward understanding and enhancing entrepreneurship worldwide, the OECD has released its first-ever Entrepreneurial Ecosystem Diagnostics report, introducing a new framework and dataset to assess and compare the entrepreneurial environments of all 38 OECD member countries.

As the first edition, the report serves as both a benchmarking tool and a strategic resource for policymakers. It aims to identify systemic bottlenecks, guide targeted reforms and foster more dynamic, inclusive and resilient entrepreneurial ecosystems.

Methodology

Departing from traditional rankings, this report presents a new OECD diagnostics tool for assessing national entrepreneurial ecosystems in OECD countries, adopting a multidimensional, evidence-based approach to understanding what drives entrepreneurship at the national level.

Unlike previous efforts that relied on single indices, the OECD’s new methodology evaluates ecosystems through three core dimensions:

  • Inputs: Encompasses ten foundational elements such as institutions, infrastructure, finance, talent and culture, measured through composite indexes built from over 40 indicators.
  • Outputs: Measures entrepreneurial performance, including startup rates and business survival.
  • Variation: Assesses inclusivity and regional distribution, focusing on gender and geographic equity.

Each dimension is tracked at three time points to monitor ecosystem evolution and progress. This innovative methodology not only captures the complexity of what drives entrepreneurship but is also designed as a policy support tool, providing policymakers with robust, evidence-based insights to identify systemic bottlenecks and guide national strategies.

Ireland’s strong showing

Ireland emerges as a strong performer in this inaugural assessment, demonstrating robust scores across several key input dimensions.

The country attains relatively high scores on the following metrics:

  • Institutions: Evaluates administrative systems, regulations and taxation that impact economic activity, focusing on corruption control, rule of law, market regulation and tax rates; and
  • Intermediate services: The availability of these services can reduce entry barriers for entrepreneurs, aiding them with marketing, pitching, network building and connections with investors and customers.

These strengths are reflected in Ireland’s high start-up activity and strong start-up survival rates, positioning it among the top-tier entrepreneurial ecosystems in the OECD.

Ireland scored the lowest scores on:

  • Knowledge: Measures the knowledge base necessary for innovation, including research and development (R&D) expenditure (GDP share), patents (per capita, and GitHub software uploads (per thousand people).
  • Infrastructure: Assesses transport and telecommunications, with indicators on fixed subscriptions, mobile data usage and transport quality.
  • Culture: Captures entrepreneurial propensity and supportive social norms through indicators on career desirability, social status and trust.

These can be interpreted as the weakest links in the ecosystem, which should be addressed first.

A foundation for future growth

The OECD emphasises that this diagnostic is a pilot edition, laying the groundwork for future iterations with even deeper data and refined methodologies. For Ireland, the findings offer both validation and a roadmap.

‘Ireland’s Innovation Index 2025’, a recently published joint report by KPMG Ireland and Industry Research & Development Group (IRDG), provides valuable insights into the current state of innovation in Ireland and emphasises the need for an Innovation Tax Credit.

The Innovation Index 2025, based on responses from 556 companies, reveals a vibrant but constrained innovation landscape:

  • 65 percent of businesses increased R&D spend over the past three years; 71percent expect to increase it further.
  • 64 percent cite budget constraints as the top barrier to innovation.
  • 76 percent say a 50 percent R&D tax credit would incentivise green innovation.
  • Only 22 percent of firms have structured innovation measurement systems.
  • 53 percent believe Ireland’s R&D supports are competitive internationally, but 31percent are unsure.

The report also highlights a growing appetite for disruptive technologies, with nearly half of respondents prioritising AI and digital transformation. Yet, administrative complexity and slow funding disbursement continue to deter companies from fully engaging in R&D.

Innovation at a crossroads

Ireland’s innovation ecosystem is at a crossroads. The OECD and Innovation Index 2025 reports converge on a single truth: without strategic investment and policy reform, Ireland risks losing its edge.

The EU’s ambitious strategy sets a promising path for fostering a more dynamic and competitive European innovation landscape.

Dr Clare Guy is Research and Development Grants Coordinator at KPMG