What is this metric and why is it important?
Business enterprise expenditure on research and development (BERD) measures the dollar amount spent on research and development activities by business enterprises. We report it here as a percentage of GDP to allow for comparison between different-sized economies. While not a direct measure of innovation, BERD indicates firms’ commitment to the generation and commercial application of innovations.
How is Canada doing?
- In 2017, BERD was 0.8% as a share of national GDP in Canada, well below BERD intensity in the OECD overall, at 1.7%. Canada ranks near the bottom of the OECD and last among G7 nations.
- Moreover, BERD intensity in Canada has been trending downward since 2001, while in the OECD overall it has been rising.
- Canada’s lower BERD intensity is explained in part by the industrial structure of the economy, with greater shares of the economy made up of historically less R&D intensive sectors like resource extraction. At the same time, many of Canada’s more R&D intensive sectors tend to spend less on R&D (adjusted for size) than the same sectors in the G7 more broadly.
- By province, BERD intensity as a share of provincial GDP is highest in Quebec (1.37%), Ontario (1.17%), and BC (1.02%).
Research and development (R&D) is defined by the OECD as creative work undertaken on a systematic basis in order to increase the stock of knowledge and the use of this knowledge to devise new applications. Three activities are considered R&D: basic research, applied research, and experimental development. Business enterprise expenditure on research and development (BERD) measures the total expenditure (current and capital) on R&D done by companies located in a given country.
BERD tells us how much firms report spending on the development of new or improved products, processes, and services intended for the market. Such spending is not a direct measure of innovation, because investments can be poorly selected and results are not guaranteed. However, according to the Council of Canadian Academies’ Expert Panel on Business Innovation, BERD “signals a firm’s commitment to the systematic generation and commercial application of new ideas.”
BERD is an indicator of innovation activity—but it is important to note that such spending does not always result in innovation, due to poorly selected investments and results not being guaranteed. Moreover, not all research and development activities are recognized, recorded, and reported as such by all firms. That is, a firm might develop a new product or service without formally recording its efforts as “research and development.”
There are also cross-jurdistinctional comparison issues. First, until recently, Canada did not report business spending on social sciences and humanities research, while other countries did. Second, R&D that draws on existing knowledge (to improve products, services, and processes) but does not generate new knowledge is counted by other countries in the OECD, but not Canada. Together, these limitations suggest that Canada’s BERD may be underestimated; however, many analyses confirm that even with this undercounting, Canada’s BERD intensity is low by peer standards.