Local Indicator Database for Economic Analysis
This report examines a wide range of factors that support technological innovation and entrepreneurship in major Canadian city-regions with a special focus on urban areas in Ontario. The concept of ‘regional innovation ecosystem’ is used to frame and endorse the view that innovation and entrepreneurship are influenced by a set of interconnected elements that function in concert to support growth and prosperity. The current thinking on regional innovation and entrepreneurship is presented in three groups: finance; human capital, and; industrial structure. A set of quantitative indicators are provided by Local IDEAs (Indicator Database for Economic Analysis) that provide measures of the specific elements of each of the three themes. Statistical analysis is applied to these indictors in order to determine which combination of factors are most associated with technological innovation and entrepreneurship. These findings then provide an empirical basis for possible policy interventions.
The statistical analysis is separated into two parts – the first seeks to understanding the key regional factors linked to technological innovation (as measured by rates of patenting) and the second assesses the main drivers of entrepreneurship (as measured by high-tech start-up rates). It is important to note that the rates of technological innovation and high-tech entrepreneurship are strongly correlated and that the former is seen as a precursor to the latter. The most significant factors for each are as follows:
Technological Innovation (Patents)
Entrepreneurship (high-tech start-up rates)
The analysis also shows how these factors form interrelated ‘ecosystems’ that function as a whole. When applied to specific city regions across Ontario, the analysis helps to identify the levels of technological innovation and related entrepreneurship in each community. This evidence then enables differentiated policy recommendations depending on the state of local ecosystems. Three types of cities regions are presented:
High-performing innovation ecosystems
Low-performing innovation ecosystems
Process-based innovation ecosystems
The high-performing innovation ecosystems are city-regions that have managed to produce high-levels of patents as well as generate relatively large numbers of high-tech start-ups. Such places possess business environments that are top-spenders on R&D and have an abundance of top-level skill in combination with strong publically funded research institutions (mainly universities and research hospitals) that provide both basic scientific research and highly educated scientists. The main policy recommendations this group involve government playing a role in coordinating the various elements that are present in a manner that focuses on maintaining existing strengths and building on emerging ones. More practically, this means: a) finding the optimal balance between spurring more private R&D and the direct funding of university and hospital based research; b) targeting specialized degree programs at universities that provide greater impact on the economy; and c) ensuring that secondary schools are graduating students that can potentially fill such programs (primarily in maths, sciences and business).
The city-regions with low-performing innovation ecosystems are places that generally possess all of the key basic elements (i.e. industrial base; research institutions) required of high-performing innovation ecosystems but they are not producing innovation or entrepreneurship at high levels. The main reason appears to be the private sector finance is seriously lacking in these regions. More detailed research would need to be done in order to identify the specific reasons as to why this is the case. Overall, the main areas that need to be addressed are: a) identify why business R&D is generally lagging; b) identify whether the lower levels of highly skilled workers (particularly in business) is mainly due to lack of local training or issues of retention; and, c) better understand how these elements are organized and coordinated in each region and if there are ways to improve and enhance local institutions.
The third group of city-regions are places that do not generally possess the necessary elements needed to sustain high-performing innovation ecosystems. This is mainly due to there being no local research intensive institutions and/or the lack of an existing high-tech industrial base. This does not mean that these city-regions are not of vital economic importance to the province of Ontario but rather local economic development strategies need to be tailored to the local context. Not all places are going to be globally competitive based on their ability to continually generate new leading edge technologies and thus different approaches are required. The city-regions in this group are typically smaller urban areas that specialize some combination of agriculture, resources, manufacturing, and logistics. Such places are often key users of new technologies but not necessarily producers of them (although there are niche strengths). Important to these places is the concept of ‘bottom-up’ or incremental innovation whereby improvements to processes and products are achieved through all workers being directly engaged in innovation. Such methods are typically linked with higher levels of productivity and quality control. In terms of provincial-level policy one of the most important involves engaging the Ontario college system in the training of workers in vital skills that are aligned with local economic needs.
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