How the USA and Canada are Innovating in Renewable Resources

A sizable portion of Canada's economy is comprised of industries that do not prioritize R&D-based innovation projects, which contributes to the BERD intensity gap. In the United States and Canada, the main resource business invests substantially in M&E, which replicates capital goods industries' R&D, but conducts little R&D of its own. To evaluate the magnitude of the industry mix effect, the overall BERD-to-GDP ratio is calculated by aggregating sectoral BERD intensities and weighting them by GDP share.31 The US-Canada BERD intensity gap can be estimated as the sum of specific sector gaps.32 While include more sectors in an analysis is desirable, the availability of comparable sectoral data for the United States and Canada limits the amount of information. The OECD provides a comprehensive database of.

However 16 years of comparable data beginning in 2002 are sufficient to communicate

The tale Table 5 depicts the sectoral split of the U.S.-Canada BERD intensity differential in 2002.33 Ab Iowerth (2005) carried out a similar analysis using data from 1999. In 2002, the difference between the United States (2.90%) and Canada (1.87%) was around 1.03 percentage points, as indicated in the last column of Table 5. The manufacturing sector contributed 0.63 percentage points to the gap, while business services gained 0.46 percent. Mining, utilities, and construction each contributed to a reduction in the deficit.The auto industry (vehicles and parts) was responsible for the majority of the production shortfall. It accounted for 0.17 percentage points, or more than 25%, of the manufacturing difference. In 2002, the US auto industry had a BERD intensity of 13.4%, more than seven times higher than Canada's 1.9%. R&D activity is primarily concentrated in parent companies based in the United States and Japan. The chemicals industry, M&E, and "other" industrial sectors (not listed in the OECD database) contributed 0.40 points to the deficit due to increased BERD intensity in the United States. Foreign dominance in particular industries, such as chemicals, may result in less R&D for Canadian enterprises.35Foreign control does not always imply lower BRD intensity in Canada compared to the United States. Despite extensive foreign ownership, Canada outperformed the United States in terms of R&D intensity in the pharmaceutical and computing machinery sectors in 2002. The disparity between the United States and Canada increased by 0.12 percentage points as a result of the stronger weight of these industries in the US economy compared to Canada's.

Table shows that Canada has a low R&D intensity in manufacturing sectors where it has

A large presence (e.g., autos, M&E, and "other" manufacturing) and a small presence in sectors with high R&D intensity (e.g., pharmaceuticals, computing machinery, electrical machinery, and communication equipment), with the exception of aerospace.firm services are one of the most active subsectors in today's economy, accounting for 66% of US firm GDP in 2002 and 53% in Canada. In 2002, the U.S.-Canada gap widened by 0.46 percentage points as BERD intensity in services grew (1.71% vs. 1.26%). The "wholesale and retail trade" subsector had a substantially greater BERD intensity in the United States than in Canada, accounting for 0.29 percent of the overall U.S.-Canada gap, or roughly twice that of the auto industry. In 2002, Canada enjoyed a slight lead in the financial intermediation sector. However, statistics on this sector and other business services are less reliable than those on manufacturing subsectors. (See Chapter 10 for a banking case study. Evolution of the R&D Gap Table 5, based on 2002 data, is a snapshot in time. Figure 5.2 depicts the 16-year history of the sectoral BERD intensity gap between the United States and Canada, spanning 1987 to 2002. The margin fell from 1.7 percentage points in 1988-91 to one point in 2001-02, but it has since increased slightly (see Figure 5.1). Since the mid-1990s, the trend has been predominantly driven by a decline in the gap's contribution from manufacturing and a rise in the amount from business services. In terms of output and employment, the United States is transitioning to services quicker than Canada. The service sector is fostering greater innovation and dynamism in the US economy. Chapter 3 describes a significant investment pattern in ICT that is compatible with this shift. Current data indicates that Canadian enterprises are severely lagging the trend. Baldwin et al. (2008) discovered that the difference in MFP levels between the United States and Canada in 1999 was mostly due to a disparity in business services.

Annex III offers substantial sectoral statistics on R&D intensity and output shares in the United

States and Canada over a 16-year period, which support the trend seen in Figure 5.2. The aviation sector has made tremendous headway toward closing the R&D deficit. This pattern is explained by a reduction in US aerospace output and reduced R&D intensity following 1991, which was caused by the end of the Cold War and rivalry with Airbus, rather than considerable Canadian R&D progress. The BERD gap is generated by the interaction of "structure" and "intensity". Table 5 reveals that the 11 sectors with the smallest overall deficit are resource-based or established industries, such as pulp and paper, basic metals, fabricated metal products, textiles and footwear, and mining and quarrying. Despite being more R&D intensive and economically significant than the United States, Canada's growth industries are not particularly dynamic or imaginative. business R&D expenditure and GDP (value added) for 16 manufacturing and a few service subsectors (refer to Table 5). The data for Canada and the United States is reasonably complete, including 23 subsectors from 1987 to 2002. Later statistics are available, although coverage between the United States and Canada is incomplete.