From AI capability to national competitiveness: The roles of innovation capacity and political stability

This study examines how national AI capability relates to national competitiveness through a theorized sequence of innovation and institutional stages. Drawing on national innovation systems theory, institutional economics, and strategic signaling perspectives, it argues that AI capability does not automatically generate competitive advantage but becomes competitiveness-relevant when absorbed through innovation capacity and stable governance institutions. Two AI indices, the Oxford AI Readiness Index and the Tortoise Global AI Index, are combined with the Global Innovation Index, World Bank political stability, and IMD World Competitiveness scores for 2024 and 2025. Sequential mediation analysis across 59 countries shows that AI capability is consistently associated with stronger innovation capacity, innovation capacity with political stability, and political stability with national competitiveness. The serial indirect association holds across both years and both AI indices and remains evident when institutional content is removed from the innovation measure and when the most influential observations are excluded. By contrast, direct AI-competitiveness associations are less robust. Supplementary diagnostics clarify the evidentiary boundary of the analysis, indicating that the proposed sequence is best interpreted as a theory-guided pattern of cross-national associations rather than as an empirically identified causal ordering.