[olihb]

Exactly. These phenomena are notoriously non-linear.

IMHO, the best way to calculate a good index is to model (usually log-transformed) the relationship between the venture capital dollars and the population (or overall investment, number of degree awarded by year, money invested in R&D, etc.), then take the ratio between the expected value and observed value. The resulting index is less sensible to scale issues.

[yummyfajitas]

These phenomena are also highly correlated with particular cities.

Instead of comparing Israel to the US or India, compare Haifa or Tel Aviv to the Valley, NY, Bangalore or Pune. I'd be surprised if Haifa/Tel Aviv came out ahead of the Valley, but I'm definitely interested to know how they compare to NY.

[begemot]

There is an index that tries to measure innovation called the Global Innovation Index (http://en.wikipedia.org/wiki/Global_Innovation_Index_%28INSE...), interestingly Israel comes in at 14th, you'd think they would be number one if this article is to be believed.

[chacham15]

By that same logic, you would say that Israel innovates more than the US since it appears below Israel on that list.

[begemot]

What logic? What are you talking about? The US is above Israel on every sub-index. Besides it is obvious that it is relative to population because in absolute terms the US would far outstrip any competitors.