News from the IPL
RESEARCHERS
Business trying to scale up in Canada face multiple challenges with no “silver bullet” solutions
Mark Lowey, Research Money
This article summarizes a recent panel featuring IPL Co-Director David Wolfe. Scaling up Canadian businesses is key to addressing the productivity crisis and growing the economy but startups face several challenges in becoming large and globally competitive, experts said at Research Money’s annual conference in Ottawa. These challenges include access to capital, lack of Canadian investment in scaling companies, insufficient domestic procurement of products, and inconsistent government policies, they said during a panel discussion titled “Addressing Canada’s Scale-Up Problem.”
Scott McKnight, IPL Working paper
Newfoundland and Labrador (NL), located on Canada’s northeast Atlantic coast, plays an outsized role in the national and global energy landscape. Despite a population of just over half a million, the province is a significant producer and exporter of both carbon-intensive petroleum and low-carbon hydroelectricity. It also exhibits some of the highest per capita energy consumption rates in the country. As the global shift toward low-carbon energy accelerates, NL faces a complex array of opportunities, risks, and strategic decisions that will shape its economic and environmental future. This paper explores the province’s pivotal position in the energy transition, highlighting unresolved questions around the expansion of offshore oil production, the financial and investment implications of curbing fossil fuel development, and the challenge of balancing legacy industries with emerging sectors such as wind energy, hydrogen, and critical mineral mining. It also considers how NL’s companies, workforce, and public institutions might secure competitive advantages in a global economy undergoing rapid decarbonization and geopolitical realignment. The analysis draws on insights from a two-day seminar held in December 2024 in St. John’s, titled “Innovation and the State of the Energy Transition.” Led by Scott McKnight, the seminar convened stakeholders from industry, government, and academia, including Memorial University and the College of the North Atlantic.
Editor's Pick
Regulating via Conditionality: The Instruments of the New Industrial Policy
Fabio Bulfone, Timur Ergen, Erez Maggor, Regulation & Governance
Conditionality was a central concern in the development literature of the 1990s. With the significant expansion of targeted public support to private firms since the Great Financial Crisis, the issue of conditionality has once again become a focal point in industrial policy debates. Despite the growing interest in the concept, the existing literature lacks a systematic conceptualization of conditionality within the context of industrial policy and does not outline the political factors that enable state actors to introduce it. This article addresses this gap by critically reviewing the existing literature and providing a systematic political economy of conditionality. It offers an overview of the literature on conditionality, examining different industries, historical periods, and national contexts. In doing so, it makes three key contributions to the debate on industrial policy and regulatory instruments more broadly. First, it distinguishes between two broad approaches to encoding conditionality in industrial policy: hard-coding and soft-coding. Next, it maps the coalitional, institutional, ideational, and global contextual factors that facilitate conditionality. Finally, it presents two vignettes of recent industrial policy initiatives in the European Union and the United States as illustrative cases. This conceptual exercise, intended to lay the foundation for future causal research on conditionality, demonstrates that the presence of conditionality is not merely a technical matter of political design but is instead shaped by configurations of political economy factors.
Cities & Regions
Entrepreneurial local governments and the development of the decentralised platform economy in China
Jun Sun, Kai Jia & Martin Kenney, Regional Studies
The platform economy in China is more geographically decentralised than in the United States, where platform firms are highly concentrated on the West Coast. This different spatial pattern is a product of China’s regionally decentralised authoritarian governance system, which provides local governments with the policy latitude and resources to affect local entrepreneurial growth. Through interviews and by comparing five-year plans at the national and municipal levels, the authors find that Chinese local governments developed dynamic capabilities to sense and seize emerging platform industry opportunities. These capabilities offset the centripetal clustering forces and result in a platform economy with less geographical concentration.
The Vector Institute
The Vector Institute released its fourth annual Ontario AI Snapshot, produced in partnership with Deloitte Canada. The research indicates that the province’s AI sector has grown significantly, cementing Ontario’s position as a leading global AI hub. Buoyed by its remarkable concentration of AI talent, the sector is attracting major investments and creating well-paying AI jobs that directly support economic growth.
Statistics
Macroeconomic productivity gains from Artificial Intelligence in G7 economies
OECD
The paper studies the expected macroeconomic productivity gains from Artificial Intelligence (AI) over a 10-year horizon in G7 economies. It builds on our previous work that introduced a micro-to-macro framework by combining existing estimates of micro-level performance gains with evidence on the exposure of activities to AI and likely future adoption rates. This paper refines and extends the estimates from the United States to other G7 economies, in particular by harmonising current adoption rate measures among firms and updating future adoption path estimates. Across the three scenarios considered, the estimated range for annual aggregate labour productivity growth due to AI range between 0.4-1.3 percentage points in countries with high AI exposure – due to stronger specialisation in highly AI-exposed knowledge intensive services such as finance and ICT services – and more widespread adoption (e.g. United States and United Kingdom). In contrast, projected gains in several other G7 economies are up to 50% smaller, reflecting differences in sectoral composition and assumptions about the relative pace of AI adoption.
Venture capital, innovation and business success in cleantech startups: The new green economy
OECD
Startups play a pivotal role in driving innovation and can significantly contribute to the transition toward an environmentally sustainable economy. This paper presents new evidence on the creation, performance, and innovation activity of green startups—those offering goods and services relevant to the green transition—over the period 2010–2022. While the share of green startups has grown modestly overall, venture capital investment in green startups increased considerably in recent years, peaking at around EUR 74 billion globally in 2021. The econometric analysis shows that green startups are more likely to secure VC, receive grants, and innovate than non-green startups. They nonetheless take longer to secure VC and are less likely to do so at the seed stage. Grants attract private investment, especially for green firms, and clean tech patenting is associated with improved funding outcomes. Green startups are less likely to go public and tend to take longer to exit, suggesting scale-up challenges that may warrant targeted policy support.
Innovation Policy
Helena Lenihan, Kevin Mulligan, Mauricio Perez-Alaniz & Christian Rammer, Industry and Innovation
The R&D policy instrument mix concept has become increasingly important for understanding how public R&D support drives firm-level R&D. To-date, empirical studies have conceptualised the R&D policy instrument mix as a static unit, whereby firms receive different R&D policy instruments at one point in time. However, firms can also receive different instruments in a sequence, over time. While potential sequencing effects are well rehearsed theoretically, this issue remains a major gap in the empirical literature. This study evaluates, for the first time, how R&D policy instrument mix sequencing impacts firm-level R&D. It constructs a unique dataset, comprising 8,556 unique firms, and 36,136 firm-year observations, over a 17-year period for Ireland. The analysis focuses on two different R&D policy instruments (R&D grants and R&D tax credits) pursuing the same policy objective. The authors develop a novel approach to measure R&D policy instrument mix sequencing, focusing on the R&D policy instruments firms receive over a four-year time window. They implement this approach using a multi-treatment panel-data matching approach, which addresses issues of selection bias. The results suggest that R&D policy instrument mix sequencing is highly effective at driving firm-level R&D, and that some sequences are more effective than others. These findings highlight opportunities to realise superior policy outcomes through targeted sequencing.
Canada Doesn’t Have an Innovation System: It Has 134 Programs
Lawrence Zhang, ITIF
This post argues that Canada needs is a new federal institution that makes the system more than the sum of its parts: a Canadian Innovation and Industrial Transformation Agency. It would act as mission control for innovation by coordinating strategy across departments, linking support from research to commercialization, and building the industrial capabilities Canada needs to compete on more than just natural resources.More than 50 countries have built dedicated innovation agencies to convert research into economic strength. Canada has not. Instead, we have 134 federal innovation programs. Each is layered on the last to patch failures without addressing the system’s design flaws.
Webinar | Toward a New Canadian Industrial Strategy
The Transition Accelerator and the Commission on Carbon Competitiveness
This webinar discusses a recent report released jointly by the Transition Accelerator and the Commission on Carbon Competitiveness (C3). The report offers a new strategic approach for Canada to address long-standing problems of under-performance on productivity and innovation. The report surveys industrial policy for electric vehicles in China, Korea, and Japan; semiconductors in Taiwan; and aquaculture in Chile, as well as Canadian success stories in the canola industry, the oil sands, and the satellite industry—all very different cases—and derives three common elements of successful efforts: 1) they target specific technologies/sectors and stick around for the long game—as long as the effort yields results; 2) they establish tailored coordination mechanisms that can continuously align industry and government efforts as innovators’ needs evolve; and 3) they augment a research and development (R&D)-focused strategy with a wide variety of other supporting policy instruments. Also see this Globe and Mail article on the report by Adam Radwanski, who concluded that "compared with some of the much bigger bets that [the Carney] government is currently negotiating toward with the provinces, this particular version of nation-building could be relatively low cost and high reward."
Policy Digest
An institutional framework for industrial policies
OECD
Industrial policy is an increasingly common topic of discussion among policymakers, generating a stream of relevant evidence. However, the question of its governance, which is key to the effective realisation of policies, is infrequently addressed. This paper aims to address this gap. First, it provides a framework for the analysis of the institutional setting governing industrial strategies, starting from an evidence-based policy cycle. Second, it describes the data gathered from a pilot survey exercise conducted among OECD countries. Although the sample may be too small to provide definitive recommendations, some good practices emerge to reinforce the capacity of the state to mobilise the relevant stakeholders, coordinate them, deliver policies and use data to evaluate the entire process and adapt accordingly.
Based on a policy cycle divided into four parts, the framework lists the questions faced by policymakers when designing the institutions to support the design and implementation of industrial strategies:
Stage 1 - Strategic orientation:
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Establishing a formal diagnosis covering the strengths and weaknesses of the economy appears to be a necessary step towards designing a sound industrial strategy, building on all available data, evidence, and skills. This helps identify realistic and welfare-improving objectives, and potentially market failures that public intervention can aim to alleviate.
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Such a diagnosis could serve as a basis for the consultation of all stakeholders. Overlooking groups (e.g. citizens) or members of some groups (e.g. small firms) puts at risk the establishment of a consensus around the objectives of the strategy.
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Writing down a formal strategy document appears helpful for the political legitimacy and conduct of industrial policy and can be both a means and an objective of the consensus building activities. Although the strategy documents may focus on the narrative of the rationale for intervention, it is also a relevant moment to establish a set of quantitative indicators to track the roll-out of the strategy and its impact.
Stage 2 - Policy Coordination:
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Given the limited available evidence on the effectiveness of industrial policy instruments, their choice and design should include international benchmarking activities to maximise potential peer learning.
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Throughout the conduct of industrial policy, which is likely to involve instruments managed by different ministries, institutionalised dialogues, such as inter-ministerial meetings, can help coordinate the varied workstreams.
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Because the government’s different constituencies might sometimes put the emphasis on different priorities of the strategy, having a high-level official such as a minister in charge of industrial policy (not necessarily the prime minister) may help moving forward. An arbitration process at a more technical level might also help expedite more benign decisions
Stage 3 - Policy Implementation:
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The growing role of autonomous agencies should not obliviate the responsibility of ministers or high-level officials to “own”, or be accountable for, policy instruments, including through to their implementation and evaluation.
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Implementing entities – whether agencies or administrations – have a unique role to play as they are in direct contact with end beneficiaries. They should be able to leverage this knowledge to operate in an efficient autonomy, but also act as a privileged source of bottom-up information for the government.
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To achieve their mission, these entities need a particular set of skills relating to both the business world and public administration. Human resources management and training are therefore key to successful implementation.
Stage 4 - Evaluation & Adaptation:
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Data collection is an essential input to evaluation. Implementing entities need to collect information on both beneficiaries and other applicants, especially in the case of selective instruments, while statistical agencies must be able to integrate this information with administrative data.
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Policy evaluation must be carried out by teams which are independent from the implementation and design of the policies, whether these teams are internal to the government or external.
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Evaluation results should be made publicly available and officially pushed to the policy owner, to trigger a dialogue which may lead, together with other considerations such as qualitative feedback and stability objectives, to the revision of instruments.
Events
EVENTS
6th International ZEW Conference on the Dynamics of Entrepreneurship (CoDE)
October 9-10, 2025, Mannheim
The aim of this conference is to discuss recent contributions to entrepreneurial research. It focusses on the formation, growth and exit of young firms linked to innovation, environmental sustainability, or entrepreneurial finance. The conference also addresses the challenges and opportunities of entrepreneurship policies. You are welcome to participate in the conference and contribute theoretical, empirical and/or policy-oriented papers on all areas of entrepreneurship research. Interested researchers are invited to submit a paper (or extended abstracts of at least 4,000 words are also welcome) to entrepreneurship2025@zew.de. Submission deadline: 31 May 2025
Twin Transition, Ecosystems, and Disruptive Innovation
October 23rd-24th 2025, Venice School of Management - Ca’ Foscari University of Venice, San Giobbe - Economic Campus.
The 19th edition of Regional Innovation Policies Conference will take place in Venice, Italy.
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This newsletter is prepared by Travis Southin.
Project manager is David A. Wolfe