Differences in the perception of the business environment by firms that innovate and those that do not are great in Central Asia and Caucasus countries, according to a study by the EBRD.

The EBRD's Transition Report 2014 found that these differences were particularly large when firms were asked to assess the importance of corruption, workforce skills and customs and trade regulations.

"Firm-level and cross-country analyses of the drivers of innovation also show that firms innovate more predominantly in countries that have better core economic institutions, such as an environment of low corruption and a strong rule of law, countries that are more open to trade and investment and countries that benefit from a highly skilled workforce," the report found. "Better access to finance and higher-quality information and communication technology infrastructure also helps firms to innovate."

Enterprises in the Central Asian and Caucasus region spend a little on research in development - under 0.13% of their turnover, with the exception of Turkmenistan and Kyrgyzstan (at least 0.33%) and Mongolia (at least 0.72%).

This resulted in Armenia, Azerbaijan, Georgia and Uzbekistan ending up a group of countries with low innovation where few companies spend money on buying or producing knowledge and in Kazakhstan, Kyrgyzstan, Mongolia and Tajikistan in a group of countries where firms predominantly buy technology with the share of firms conducting in-house R&D relatively modest.

The study found a positive relationship between spending on R&D and the number of patents held, but, surprisingly, Kazakhstan turns out to have more patents than its R&D spending would predict.

The study singles out Armenia and Azerbaijan which place a strong focus on information and communication technology in their innovation policies for high levels of labour productivity.