In this week’s EconMinute, we’re talking about research and development (R&D) spending as a percentage of GDP.
R&D plays an important role in fostering innovation and technological growth, both of which help build a prosperous economy. The most recently published data on R&D allows us to compare not just how R&D activity has changed over time in Canada but also how innovative Canada is compared to other countries in the G7.
Over the last decade, Canada has consistently spent less on R&D activity than its peers. In an effort to place a greater emphasis on R&D, the federal government has introduced new programs over the years such as the Strategic Innovation Fund that was launched in 2017 to, among other things, increase R&D in large-scale projects.
However, the most recent data indicates that Canada is still struggling to promote research and development on a level necessary to generate economic growth.
Based on the latest data, here’s what we found:
- Despite the federal governments efforts to promote innovation, Canada has persistently underperformed over the last 10 years. On average, Canada has spent 1.75% of its GDP on R&D over that period, while the G7 (excluding Canada) spent 2.43% (~40% more).
- With the exception of a large spike in R&D spending in 2020, as COVID-19 amplified medical innovation globally, countries in the G7 have generally increased or maintained their investment levels over the decade.
- However, Canada’s R&D spending—already low compared with its peers—experienced a modest decline: from 1.8% in 2011 to 1.7% in 2021. As such, the gap with others is now closer to 60%.
- Furthermore, Canada is working its way to last. While R&D spending in Canada is beating out Italy (the weakest among the G7), Italy has made notable progress, increasing spending 25% since 2011, and is closing the gap.
Underspending on R&D is a major concern for Canada and Canadians. Given Canada’s weak long-term economic growth prospects, and the role that R&D can play in enabling growth, Canada should take a closer look at all the ways in which governments can better support R&D initiatives—or how it currently inhibits them. A key point highlighted in a 2019 report on Canada’s Competitiveness remains relevant today: a lack of innovation and progress may be attributed to a disconnect between the incentives provided by the federal government and the actual needs of businesses.
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