The concept of economic freedom implies the individual’s freedom to engage in the financial activity and the liberty to utilize, without hindrance, its income and all the factors it claims ownership of. This situation implies that governments place no limitations regarding the production, distribution and consumption of goods and services. The concept of Innovation means the emergence of a new or improved form of good, service, means of production or type of organization. The goal of this study is to investigate the effects of the components of economic freedom which ensures the security of those under one’s rightful ownership and allows one to decide what to produce, how to produce goods and services and to whom to sell (freedom of trade, size of government, monetary liberty, fiscal liberty, intellectual property rights and others) to the innovation capacity of countries. In the literature, the studies conducted on the subject of economic freedom were often linked to the growth, and there has been no prior study we come upon that linked the concept to innovation. Low income and patent data for developed countries were taken from World Development Indicators (WDI). Other data were obtained from Heritage Foundation database. The variables between country groups for the period 1996-2014 were researched with panel data method.