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Australian business investment in innovation: levels, trends, and drivers

Business investment Innovation Australia

Australia’s prosperity rests to a large degree on the competitiveness of our business sector, and in turn that competitiveness is driven by the rate and character of firm-level innovation. On some aggregate measures like Research and Development (R&D) investment, Australia’s business sector appears to be rapidly falling behind in the global innovation race. This has been a concern for business leaders and policymakers alike.

In this project we have put investment in innovation under the microscope. The report creates a baseline for Australian business investment in innovation, diagnosing the key trends and drivers, and the opportunities by sector and firm size, to accelerate innovation investment by businesses. Finally, it defines strategic choices policymakers need to make now to accelerate innovation investment, and help Australia increase jobs, growth and productivity.

We find that while falling R&D is a concern, the distinctive structure of Australia’s economy means that economy-wide R&D only gives a partial picture of Australia’s innovation performance. In the past decade, structural and cyclical factors – including the mining cycle – have further muddied the waters. In many sectors, Australia invests more in R&D than our global peers do. But Australia is not competing as intensively in what many believe are the most lucrative parts of the global innovation race.

For policymakers, we believe the findings emphasise the need to lift both R&D investment and nonR&D innovation investment. The policy mix required to achieve this will be shaped in part by three key choices:

  1. Should policymakers rebalance support for R&D and non-R&D business investment in innovation?
  2. Should policy focus on growing our activity in the most R&D-intensive sectors, namely Manufacturing and IMT, or in other sectors, and if so which ones?
  3. Should the innovation policy mix be customised based on firm characteristics, capability, and strategy?

This report has clearly identified the growing complexity of the innovation landscape in Australia, which in turn raises issues around what types of innovation investments policymakers should measure, compare and target. We are mindful that the Government’s Innovation Metrics Review has been working on this problem intensively over recent months, and commend that work whilst noting that the ongoing evolution of the economy will ensure that remains an ongoing challenge.

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