The World Economic Forum has suggested a classification differentiating countries whose growth is based on several factors among which innovation. This post presents the home countries of the world’s Research and Development leaders, the growth-leading sectors based on the IRI Scoreboard for data on innovation, managed by the European Commission. Special attention is paid to Canada’s performance.
It is often said in the literature that the rise of economic giants such as China with very low labour costs incites developed countries to galvanise their added value within global value chains. The theoretical reasoning behind this type of analysis is directly based on neo-classical models initiated in particular by Heckscher, Ohlin and Samuelson in the 20th century (Leamer 2012). There is certainly some truth in these analyses. Early on in the 21st century, China has indeed become the world’s workshop with an initially low added value (Assche and Ma 2009). However, the world is also becoming more complex. As China develops, it gains in technology transfer and knowledge development. In 2019, China surpassed the USA for the first time in the number of filed Patent Cooperation Treaty system applications.
According to economists Klaus Schwab and Xavier Sala-i-Martin, in the context of the early 21st century, the World Economic Forum has established a series of indicators enabling the categorisation of countries beyond conventional criteria such as GDP growth rate (Schwab et al. 2016). The world can no longer be limited to a dichotomous depiction between developed and developing countries. We may add emerging countries, economies in transition, and other forms of categorising based for example on their facility to do business or levels of corruption.
The World Economic Forum has suggested a classification differentiating countries whose growth is based on factors, i.e. essentially natural resources; those whose growth depends on the pursuit of efficiency; and finally, those whose growth is driven by innovation. In the latter category (i.e. advanced economies), we find most developed countries, as they were formerly called.
Without necessarily being prescriptive, the approach of the World Economic Forum nevertheless indicates that all countries are moving toward the third category, in other words, in the direction of innovation-driven economic growth.
The IRI Scoreboard for data on innovation, managed by the European Commission, lists Research and Development investments made by the world’s 2,500 top investor companies. The following chart shows, on the one hand, that the United States is the country where companies invest the most and on the other, that China is pursuing sustained investment, far ahead of Canada. It is interesting to analyse Canada in this context. In the World Economic Forum’s classification, Canada is in the advanced economies category and ranks 15th in the 2014-2015 report.
The data come from “The EU Industrial R&D Investment Scoreboard” (IRI: https://iri.jrc.ec.europa.eu/rd_monitoring), listing the 2,500 top corporate R&D investors in the world and other indicators. The data have been collected by the European Commission. It is based on company data extracted directly from each company’s Annual Report.
The following chart shows how investments of the top 2,500 companies have evolved since 2004. It is interesting to note that they maintained sustained growth of their R&D investment even after the 2008 crisis.
The issue now is to find out which countries these companies come from.
The chart below illustrates the number of companies belonging to the above described category per country. The list is topped by the United States. Interestingly, these leading countries are all members of the G20 (except for Taïwan), which confirms the neo-classical premise that the corporations of developed countries are the largest innovation investors. Institutional quality and industrial policies in developed countries likely constitute an asset for these companies. Canada ranks 28th in this rating and China is 2nd—testimony to its transition towards an economy of knowledge, moving ahead of historically innovation-oriented countries.
In order to further refine the comparison of countries where world R&D leaders are found, it is useful to bring in the number of companies ranking among the top 2,500 in relation to the GDP of their home country. This is illustrated in the following chart.
Apart from the country, it is also of interest to look at the top industrial sectors represented in the classification of the 2,500 leading companies in terms of R&D. The following chart shows that pharmaceuticals companies are now ahead software and computer services.
It is also worthwhile knowing how the number of companies has progressed since 2012 within the nine most represented sectors in 2019.
In sum, in the first section of this paper, we have analysed the evolution of R&D budgets of the top 2,500 corporate investors in this area. A number of salient facts should be highlighted. Firstly, the total investment of these companies has been rapidly increasing over the past decade (+65%). In addition, it is interesting to note that the leading R&D companies are based in developed countries, many of those topping the list being G20 members. This confirms the hypothesis of the World Economic Forum that the growth of these countries is owed to innovation. Finally, the sector-based analysis of this classification demonstrates the rapid emergence of R&D investments in the pharmaceuticals sectors.
This section provides access to the resources that were used to create this article.
Assche, Ari Van, and Alyson C. Ma. 2009. “When China Sneezes, Asia Catches a Cold: The Effects of China’s Export Decline in the Realm of the Global Economic Crisis.” 2009dt-01. CIRANO. https://ideas.repec.org/p/cir/cirtra/2009dt-01.html.
Leamer, Edward E. 2012. The Craft of Economics: Lessons from the Heckscher-Ohlin Framework. MIT Press.
Schwab, Klaus, World Economic Forum, Xavier Sala-i-Martín, and Columbia University. 2016. “The Global Competitiveness Report 2013–2014: Full Data Edition.” Acemoglu, D., S. Johnson, and J. Robinson. 2001. “The Colonial Origins of Comparative Development: An Empirical Investigation.” American Economic Review 91: 1369–401., April. http://repositorio.minciencias.gov.co/handle/11146/223.
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