Canada R&D Investment Chart

Why is R&D Important?

Investing in Research & Development is necessary to innovate, drive down costs, compete on the global market and build foundational technologies in this fast changing world. Numerous times, Canada has been at the forefront of new technologies such as telecommunications, smartphones, artificial intelligence, etc. only to lose out in the race. R&D doesn’t have to be done at the scale of multinational companies either. It is important for small companies to invest to improve their competitiveness.

What is GERD?

One of the standard metrics for measuring the amount of investment in R&D in a country is called GERD - Gross Domestic Expenditures on Research & Development. Officially, it is defined as "total intramural expenditure on R&D performed on the national territory during a given period. GERD includes R&D performed within a country and funded from abroad but excludes payments for R&D performed abroad". Let’s dive into what that means:

GERD includes all the investment in R&D within a country. This is across domains. It also does not matter whether the investment source is local or foreign. However, it does exclude all investments in R&D performed abroad.
There are four categories of entities that perform the R&D, and 5 for funding. These are: Governments, Business Enterprises, Higher Education, Private Non-Profit Organizations, and Foreign (Funding only since R&D must happen in local country).

GERD is a good metric for measuring investment in R&D but it is not without fault. One key issue is that often the boundary between investment in R&D (to develop a new technology) and investment in a continuation and fabrication of a product once the research phase has been completed, is quite blurry. Another key issue as per Stats Canada is that the people often logging data and responding to the surveys are more often than not part of management and financial teams and thus have a more limited understanding of what truly counts as R&D. It often represents the resources allocated to R&D from a budget perspective.

Despite this, GERD is good at showing aggregate trends and compare them. Comparisons between different years, different organizations and countries minimize the issues described above since the measurement metrics should be relatively constant and include similar flaws. It is thus justifiable to use it as an indicator of R&D spend for analysis and decision making at the policies level.

Canada vs OECD

We thus wanted to dig into how much Canada actually invests in Research and Development and how it compares to other countries. For comparisons such as this one, the measurement can differ between countries so it’s best to look for international organizations that do the comparison for us. The OECD is the Organization for Economic Cooperation and Development. It currently includes 38 countries and is headquartered in Paris, France. These include many of the major global economies such as the United States, United Kingdom, France, Germany, Korea, Japan.

The plot above shows that Canada is indeed not investing nearly as much as many countries in the OECD. Over the last 40 years, Canada invests between 1.5% and 2% of its GDP into R&D and is consistently below major countries such as the United States, United Kingdom, the European Union, Japan, Germany and many others. In some cases, the difference is strong. In 2022 for example, investment in R&D in Canada amounted to about 1.71% of its GDP compared to about 6.02% to Israel, 5.21% for South Korea and 3.59% for the United States.

Canada vs G7

Another key group is the G7 which is a grouping of 7 advanced economies of the world. Its members are the United States, Canada, France, United Kingdom, Italy, Japan, Germany and the European Union. All members of the G7 are also members of the OECD. The trends are similar and even more worrisome. Canada ranks 6th out of the 7 countries in R&D investment as a percentage of GDP.

Who’s (not) doing the investing in Canada?

The highest amount of investing is done by the private business sector, followed by the higher education sector and then the federal government. For example, in 2023, the total funding in R&D in Canada was 49.148 billion CAD. Of that, just under half (23B CAD) came from private enterprises, 8.5B CAD from Higher Education and 8.2B CAD from the Federal Government. You can read more at Stats Canada

Another important note is that this investment deficit compounds and can cause significant lag in economic growth. Suddenly ramping up investment to match that of the United States for example, will not lead to an instant catch up. That would require years and years of exceeding the R&D of a competing country. It’s time to get to work! We must create the social and financial environment to encourage businesses to invest in growth in Canada.