Trade, innovation, and prosperity

Released September 2010

The Working Paper, Trade, innovation, and prosperity, shows how international trade can raise Ontario’s and Canada’s innovation capabilities to strengthen their competitiveness and future prosperity.

Previous research by the Institute has focused on the innovation and prosperity gaps in Ontario and Canada – the failure to achieve our full economic potential. In this research, the Institute draws the connection between innovation and prosperity and international trade.

Innovation is driven by a combination of support and pressure, and international trade contributes to both. According to the Institute, support refers to the conditions that assist all firms and individuals as they develop and compete. Trade leads to larger market opportunities and access to better supplies of materials, people, and capital – critical supporting conditions for innovation. Pressure comes from aggressive and capable competitors, who are a threat to complacent businesses, and from sophisticated customers, who demand innovative goods and services at low prices. International trade exposes our businesses and managers to these beneficial pressures that create the imperative for innovation.

The current global economic environment presents challenges for trade expansion. But we have opportunities to increase trade with China and other emerging economies, we are negotiating growing trade with the European Union, and we have a solid base of trade with our US neighbours.

The real challenge from trade is the pressure it puts on our businesses to become more innovative. Imports from China and other emerging economies are still relatively unsophisticated; but many of these economies will reach an “innovation tipping point” when they begin to compete on new ideas, design, and value added. To ensure our future prosperity in Canada, we need to engage with these emerging economies and step up our own innovation capabilities. Expanded trade with European Union countries will expose us even more to savvy trade partners and, through pressure and support, will help boost our capabilities.

The Institute recommends that Canadian governments and businesses should step up their efforts to encourage new and deeper trade relations on several fronts. We need to drive for more innovative businesses in our economy and more demanding consumers – with ongoing investments in education as a prime driver. Our businesses have an opportunity to draw on our recent immigrants’ experience and familiarity with some of our emerging trade partners to develop export strategies.

Topics: Economic policy, growth, and strategy, Government investment and innovation