Rethinking Credit-Linked Notes: A Brief Exploration of CLNs for Encouraging Cross-Country Innovation

This research paper explores the reconfiguration of Credit-Linked Notes (CLNs) into Innovation-Linked Notes (ILNs) as a means to encourage cross-country innovation. The literature review examines credit derivatives, R&D spending, patent economics, and the correlation between innovation and productivity. The methodology employs a qualitative analysis, focusing on altering CLNs' traditional linkage to credit by proposing a connection to entities' innovation levels. In the discussions, the concept of ILNs is introduced, emphasizing their potential to reshape global innovation dynamics. The effects of ILNs on global innovation and knowledge production are explored and the challenges are mentioned as well. In conclusion, the paper proposes a restructuring of CLNs to ILNs and the likely result in the government level is promoting innovation and knowledge production via the new incentive structure that ILNs create for governments to get financing from other entities to invest in their knowledge production infrastructure. The future research suggestion section includes the development and impact of Innovation-Linked Securities (ILS) beyond governments as an area that research can focus on.