The Importance of Innovation for Productivity

Innovation is widely recognized as a key ingredient of productivity success. This article by Someshwar Rao, Ashfaq Ahmad, William Horsman, and Phaedra Kaptein-Russell of Industry Canada provides support for this view by finding a strong positive relationship between measures of fundamental innovation, labour productivity and GDP per capita across OECD countries. The authors paint a nuanced portrait of Canada's innovation performance. The existence of an innovation gap with the United States is evidenced by our lower R&D/GDP ratio and the lower rate of patenting by Canadians in the United States, although Canada, perhaps surprisingly, has a greater relative number of R&D personal in the total economy than does the United States. But the innovation gap with the United States appears to have narrowed in the 1990s, due to faster growth in this country in the number of patents by Canadians in the United States and in R&D expenditures relative to GDP.