The IPL newsletter: Volume 26, Issue 538

New study reveals AI’s $100B economic impact across Canada, with Ontario leading the charge

The Vector Institute
Ontario is the engine of Canada’s artificial intelligence (AI) economy. AI-related jobs here in the province contributed between $42 billion and $52 billion over the last five years—nearly half of the estimated $82 billion to $100 billion contributed by AI-related jobs nationally, according to new research from Deloitte Canada commissioned by the Vector Institute. Future adoption of AI is poised to generate an additional $122 billion in cumulative real GDP in Ontario by 2035, and Canada as a whole is projected to achieve $298 billion in AI-driven economic growth. This will create approximately 41,500 new jobs annually over the next decade. Ontario’s AI ecosystem has demonstrated significant growth; the number of companies investing in AI has increased by 149% since 2019. This growth has created over 17,000 new AI-related jobs in the past year alone, bringing total AI-related employment to 39,327 positions.
 

Gross domestic expenditures on research and development

Statistics Canada
Data on the gross domestic expenditures on research and development are now available for 2023 (final), 2024 (preliminary) and 2025 (intentions). Gross domestic expenditures on research and development (final) was $57.4 billion, growing 8.6 percent from 2022 to 2023. 

Recent Research: Do mergers and acquisitions spur more or less innovation?

Jerry Coughter, SSTI
With fewer than 1,000 Initial Public Offerings in any year, the most common exit strategy for investors in early-stage innovation firms is to find an acquisition opportunity. For the broader economic goal of encouraging innovation because it drives growth and societal progress, when large firms acquire smaller, innovative companies, does it promote innovation, or does it primarily help dominant players thwart possible competition and consolidate market power? This is the central question of a recent research paper by Maria Martinez Cillero, Lorenzo Napolitano, Francesco Rentocchini, Cecilia Seri, and Elena Zaurino published by the European Commission's Joint Research Centre. The paper, M&As, Innovation and Superstar Firms, addresses the rise in market concentration and the dominance of superstar firms globally. This trend has sparked concerns over a resulting decline in competition and innovation. While macro forces like technological change and globalization are known contributors, the researchers investigate the specific role of technological mergers and acquisitions (M&As), namely, the acquisition of innovative subsidiaries primarily for their patent portfolios. The study provides evidence linking this corporate behavior to increased market power.

The State of Science, Technology, and Innovation in Canada 2025

Council of Canadian Academies
The Expert Panel on the State of Science, Technology, and Innovation in Canada Over the last 20 years, the CCA has carried out a series of assessments evaluating Canada’s science, technology, and innovation performance, trends, and challenges. These reports have helped to inform national strategies, industry- and sector-focused policies and programs, and research priorities and spending. They tell a story of a country that excels in research but faces hurdles to greater innovation and productivity. This report builds on CCA's flagship series with important new evidence and insights. It sets out the essential context for understanding innovation performance in Canada and how we compare internationally, assesses resources being directed toward the system, and identifies barriers and knowledge gaps for improving outcomes. Also see CCA's one page summary.

The performance of Canada’s business and government sectors continues to decline relative to other countries when it comes to science, technology, and innovation (STI)

Canada’s R&D intensity (expenditures on R&D as a percentage of GDP) decreased between 2000 and 2023. By contrast, in most peer countries, including all other G7 countries, R&D intensity increased, as did the average R&D intensity of OECD countries. After an extended period of decline, on a per-GDP basis, government in-house R&D expenditures have been reduced by half since the beginning of the century and sat at less than half the OECD average in 2023. Business R&D expenditures are stubbornly low and declining in several key industries. Canadian firms are slow to adopt new technologies and the rate of technology adoption is falling over time. Patent performance was 'modest', growing slower than the global average, with Canada's 1.6% of world USPTO patents ranking it 8th in world. The report attributed the 'dramatic outflow' of patents to poor domestic absorptive capacity and the dominance of foreign firms performing R&D. 

The performance of Canada’s higher education sector is a rare bright spot, producing some of the world’s top talent

Canadian post-secondary institutions produce high-quality talent, an essential component of a thriving STI ecosystem. Canada is also among the most educated nations in the world, with 63% post-secondary qualification compared to the OECD average of 41%. Despite growing competition and heavy investments from new international players, Canada’s higher education sector continues to perform well. Canada represents 3.6% of world’s publications (ranked 9th), with output growing 9% from 2012-2017 to 2018-2023. Canada ranked 6th for publication impact. 

Aggressive AI adoption could transform Canada’s STI ecosystem

AI is the most disruptive general-purpose technology of our time, and Canada has played a critical role in the development of the field, as evidenced by Geoffrey Hinton’s recent Nobel Prize, and awards to other noteworthy scientists. AI will not only impact every sector of the economy but is already reshaping research and innovation approaches themselves. Canada can be a
leader in AI adoption and improve productivity or stand on the sidelines and lose ground to competitors.

Concentrating efforts on local and sectoral areas of strength and expertise could improve STI outcomes

By focusing on city-level data, the panel observed many pockets of strength across the country, suggesting vibrant local innovation ecosystems. However, STI policy in Canada tends to be characterized by a “peanut butter” approach that seeks to spread resources evenly across the country on the grounds of fairness, rather than strategically cultivating areas of strength and growth.

Decision-makers in Canada must navigate complex and fast-moving circumstances despite incomplete and dated frameworks and metrics for critical performance indicators

Many of the ways that STI performance is conceived of and measured reflect out-of-date frameworks that emerged in an earlier economic reality. Today, digitalization, the intangibles economy, and the dominance of services necessitate and can enable new approaches to capturing the structure and dynamics of current STI ecosystems. While the panel has endeavoured to present the best data available, many important parts of the STI ecosystem are not currently measurable. 

Closing Reflections

The panel summarized the significance of their report's findings by issuing the following urgent call to action: 

"Without ambitious and decisive action across the ecosystem to reverse declining performance, Canada’s economy will struggle to provide Canadians with a standard of living they have come to expect. Without improved governance, greater public–private collaboration, and effective execution, Canada’s highly fragmented system will likely continue to underperform. The nation’s ability to deliver quality public health care and education, job opportunities, and affordable housing will be jeopardized. The set of societal challenges Canada faces today surely provides the burning platform needed to drive bold changes."

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This newsletter is prepared by Travis Southin.
Project manager is David A. Wolfe