The contributions of different industrial sectors to overall changes in research and development (R&D) spending in Canada have shifted markedly since the technology boom of the late 1990s. During that period, much of the annual growth in business sector R&D reflected higher in-house expenditures by technology-based manufacturers specializing in information and communications products. By the mid-2000s, service-based firms (companies that provided specialized R&D services, wholesaling services and information management services) were making sizable contributions to the growth in industrial R&D. More recently, much of the support for increased industrial R&D spending in Canada has come from resource-based companies engaged in oil and gas extraction.
In 2013, annual in-house R&D expenditures by business enterprises remained below levels reported prior to the 2008-2009 recession. In 2013, businesses spent $16.0 billion on R&D, compared to $16.8 billion in 2007. From 2007 to 2013, Canada’s ratio of business enterprise expenditure on research and development (BERD) to gross domestic product (GDP) trended lower, from 1.06% to 0.85%. In comparison, the overall BERD-to-GDP ratio for Organisation for Economic Co-operation and Development countries rose from 1.53% to 1.61% during the same period. These recent declines reflect lower spending by many traditional sources of industrial R&D, particularly Ontario’s manufacturing sector. These spending reductions coincided with sizeable reductions in R&D personnel. Total R&D employment declined 21.1% from 2007 to 2013, as the number of technicians and technologists employed in manufacturing and services fell markedly.
Total in-house spending on industrial R&D declined from 2008 to 2010. Annual expenditures in 2010, even as the economy recovered after the 2008-2009 recession, were about $1 billion lower than in 2007. While firms that provided scientific R&D services, wholesalers, and resource-based companies increased spending during this period, in-house R&D spending by manufacturers in 2010 was $1.1 billion lower than in 2007.
In more recent years, in-house spending by manufacturers continued to decline, while R&D spending among resource-based companies, led by oil and gas producers, increased. Total in-house expenditures by businesses in 2013 were $229 million higher than in 2010, an increase of 1.4%. By contrast, the real output of business-sector industries expanded by over 9% over this three-year period.
Businesses operating in the resource sector increased their in-house R&D expenditures after the 2008-2009 recession, as capital outlays by energy companies on engineering assets and machinery and equipment supported Canada’s economic recovery. In 2013, annual in-house R&D expenditures by companies engaged in mining, quarrying or oil and gas extraction were $1.6 billion, up 61.6% from 2010, and about twice the amount spent on in-house R&D in 2007. Higher in-house R&D in oil and gas extraction accounted for over 80% of the growth in resource-based R&D from 2010 to 2013, with in-house expenditures aimed at developing and supporting new technologies related to heavy crude extraction and environmental remediation. These in-house expenditures of energy companies are more capital-intensive than those of many other R&D-performing sectors, as only about 10% of total R&D spending in energy companies is used to pay the wages and salaries of R&D personnel.
During the mid-2000s, the growth of in-house R&D spending by companies was supported in part by manufacturers of communications equipment, aerospace products and parts, semiconductors, pharmaceuticals and medicinal products. Industrial in-house R&D expenditures by manufacturers declined sharply in 2007 and 2008, and then generally trended downward from 2010 to 2013 as manufacturing output began to recover from lows during the recession. By 2013, total manufacturing in-house R&D was about 20% below 2007 levels on lower expenditures by firms that produce pharmaceutical products, semiconductors, and communications equipment. Steady in-house R&D spending by aerospace firms moderated the decline.
Much of the recent decline in manufacturing in-house R&D reflected lower spending by Ontario-based firms, as major sources of industrial R&D in the province, such as computer and electronic equipment manufacturers and pharmaceutical manufacturers, reduced their R&D activities. Lower in-house R&D spending in Ontario-based manufacturing reflected declines in the number of manufacturing firms performing R&D and operating in the province, and coincided with lower levels of capital spending and manufacturing output.
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