News from the IPL
ANNOUNCEMENT
January 5th, 2026 will be the last issue for the Innovation Policy Lab Newsletter, as we are retiring it after that. IPL Co-Director David Wolfe has overseen this bi-weekly newsletter since its first issue in 2000. Travis Southin has been the editor since 2019, producing every issue since taking over from previous editors Jen Nelles, Tijs Creutzberg and Matthew Lucas. The newsletter has been supported through its existence by the Ontario Ministry of Economic Development, in its various incarnations, the Office of the Vice President Research, Innovation and Strategic Initiatives at the University of Toronto and the Munk Chair of Innovation Studies at the Munk School of Global Affairs and Public Policy. Throughout its 26 year life, the newsletter's mission has remained the same: to mobilize academic research and public policy analysis to support more effective innovation policy at the local, regional and national levels. This includes research from IPL affiliated faculty and students at the Munk School of Global Affairs and Public Policy, as well as from external sources. We want to thank our loyal readership of innovation policy practitioners, scholars, and other experts. This project could not have been possible without your unwavering support throughout the years. We are truly appreciative of the opportunity to have contributed to such a vibrant community of scholars and practitioners.
EVENTS
Federal Budget 2025 - Implications for the Higher Education Sector
December 2, 2025 | Recording of online web broadcast.
The 2025 Federal Budget has profound implications for the direction for Canada’s economy and society at a time of heightened global uncertainty, fiscal constraint, and new national missions related to defence, housing, innovation, and productivity. These shifts will impact the higher education sector both directly and indirectly. Given the role of Canada’s universities in research, talent development, and innovation capacity, what are the implications of the budget for their role.
This session examined the following issues:
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The overall contours and priorities of the 2025 Federal Budget.
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Key shifts in spending priorities and how these reflect new government missions.
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The implications for Canadian universities in areas such as research funding, student recruitment and support, partnerships, and innovation policy.
This event was hosted by the Innovation Policy Lab (IPL), Munk School of Global Affairs & Public Policy, Institute for Collaborative Innovation (ICI) and Global Advantage Consulting (GA).
Speakers:
David Watters - President and Founder - Institute for Collaborative Innovation
Shannon Storey - President and COO - Global Advantage Consulting Group
Leah Cowen - Vice-President, Research, Innovation, and Strategic Initiatives, University of Toronto
Discussants:
Dan Breznitz -
Munk Chair of Innovation Studies and Co-Director, Innovation Policy Lab, Munk School of Global Affaris & Public Policy, University of Toronto
David Wolfe - Chair - Co-Director, Innovation Policy Lab, Munk School of Global Affaris & Public Policy, University of Toronto
RESEARCHERS
How Can Innovation Influence Ontario's Industrial Future? | The Rundown
This is a recording of IPL Co-Director David Wolfe's appearance on TVO's The Rundown to discuss industrial policy. Description of program: "The province has focused its industrial policy on automotive, EVs, nuclear, AI, and more. But could a formal industrial policy framework help us become more globally competitive? And could innovation be the thing to drive it?"
Editor's Pick
Exporting the Future Economy: A Canadian Trade Diversification Strategy
Bentley Allan, Dave Sawyer, The Transition Accelerator
Canada needs a trade diversification strategy that builds on our strengths in natural resources, midstream processing, and clean technology production, while positioning us to succeed in the future economy. In their new report, Bentley Allan (VP Future Economy, The Transition Accelerator) and Dave Sawyer (Principal Economist, EnviroEconomics) argue that investing in clean energy supply chains is in itself a trade diversification strategy—and that boosting these investments can help address Canada’s economic, geopolitical, and climate imperatives all at once. Exports in clean energy supply chains have grown 21% faster than all other exports over the past five years, and they’re growing faster with partners outside of the US. In other words, they are already diversifying our economy—and with a targeted industrial strategy, they could help Canada unlock a $600 billion annual export opportunity by 2035.
Cities & Regions
Ontario Launches $500 Million Critical Minerals Processing Fund
Ontario Ministry of Economic Development, Job Creation and Trade
The Ontario government has officially launched the $500 million Critical Minerals Processing Fund (CMPF), which will provide strategic financial support to projects that accelerate the province’s critical minerals processing capacity and strengthen domestic supply chains. First announced in the 2025 Budget, the CMPF will "strengthen the province’s position as a global leader by ensuring critical minerals mined in Ontario are processed and refined in Ontario, by Ontario workers."
Statistics
OECD
The goods and services we buy are composed of inputs from various countries around the world. However, the flows of goods and services within these global production chains are not always reflected in conventional measures of international trade. The development of measures of Trade in Value-Added (TiVA) addresses this issue by considering the value added by each country in the production of goods and services that are consumed worldwide. TiVA indicators are designed to better inform policy makers by providing new insights into the commercial relations between nations.
Do acquisitions affect innovation in EU digital industries?
Publications Office of the European Union
This study examines the impact of acquisitions of EU-based firms by incumbent firms on innovation in digitally intensive sectors. Using a cross-country firm-level dataset spanning 2009–2020 and an augmented inverse probability weighting (AIPW) difference-in-differences (DiD) model, the analysis reveals that acquisitions generally reduce the number of EPO patent families filed by EU firms. This effect is most pronounced when non-EU firms acquire innovative targets. However, the observed average effects mask significant heterogeneity in outcomes. Specifically, acquisitions of high-patenting firms result in a substantial decline in patenting activity, driving the overall negative trend, while acquisitions of low-patenting firms typically have minimal impact, with some years even showing a slight increase. These divergent outcomes reflect varied merger and acquisition (M&A) strategies, including market consolidation, resource extraction, or innovation suppression. The persistent negative effect on high-patenting firms raises concerns about strategic competitor neutralization or intellectual property appropriation, which could undermine the EU’s innovation objectives in digitally intensive sectors.
China’s scientific clout is growing as US influence wanes: the data show how
Jeff Tollefson, Nature
China is redrawing the global science map, according to an analysis of citation data by the analytics firm Clarivate. The country is increasing research collaborations with European partners, even as it expands into emerging areas from southeast Asia to the Middle East and Africa. The United States, meanwhile, is losing its long-held lead as a research powerhouse and collaborator in world science. The analysis, which is based on a quarter of a century of citation data from the Web of Science, also warns of the looming consequences of policies instituted by the administration of US President Donald Trump. Among other actions, it has cut grant funding, sought to restrict the number of foreign students and undermined research in crucial areas such as vaccines and climate change.
Innovation Policy
The political economy of green industrial policy in liberal states
Bruno Arcand, Energy Policy
Nations are increasingly turning to green industrial policy to promote low-carbon economic development. While liberal states have long been portrayed as institutionally ill-equipped to pursue state-led economic transformations, recent research shows that they can and do advance such strategies. However, explanations for why these countries vary in their capacity to overcome institutional constraints in green industrial policy remain underexplored. The argument in this paper is that some political economy conditions shape the capacity of liberal states to pursue proactive green industrial policy. Empirically, the analysis compares the industrial strategy for carbon capture of two liberal states, Canada and the United Kingdom, that display contrasting degrees of alignment with the liberal market approach. Findings reveal that the United Kingdom's shift towards a more state-led strategy was enabled by politically salient coalitions in industrial regions and the renewed legitimation of industrial policy after the 2016 Brexit referendum, whereas Canada's strong hydrocarbon incumbency and persistent market fundamentalism sustained a liberal market approach. The paper contributes to understanding the conditions under which liberal states can move towards more state-led industrial transformations.
Ajay Agrawal, Build Canada
In September 2025, the federal government convened an AI Strategy Task Force for a 30-day sprint to shape Canada's AI approach. Several members of the Build Canada network served on the task force and submitted memos addressing themes central to Build Canada: reducing friction for entrepreneurs, reforming government incentives, building the conditions for Canadian companies to compete globally, and creating moonshots that would transform the economy. Following submissions, the government requested a 30-day hold on publication, which has now passed. As such, University of Toronto professor Ajay Agrawal is sharing his memo to contribute to the public conversation on how Canada can lead in AI. Summary: "AI is a tool, not a goal. It only matters when applied to real problems with measurable outcomes like faster healthcare or better education. Moonshots — audacious goals led by government — require system-wide change. A single bold target provides clarity and focus for system-level change. Here are five 10x targets that would transform Canada: cut healthcare waits, reduce reading failure, speed emergency response, detect threats faster, house people sooner."
An AI Strategy to Build Canadian Prosperity
Daniel Debow, Build Canada
This is another paper from from the AI Strategy Task Force. Productivity is the path to prosperity. AI is a general purpose technology that could help deliver productivity gains across every sector—but only if Canada acts with urgency. Competition is the engine of technology adoption and productivity growth. Entrepreneurs experiment, innovate, and spread new technologies faster than governments ever can. But today we have stifled competition precisely when it is most needed. Here are three ways to reignite competition: make it profitable to build here, fix government incentives, and empower defence procurement.
An overview of national strategies and policies for quantum technologies
OECD
This paper takes stock of the ambitious national strategies and policy instruments countries are introducing to support the development and uptake of quantum technologies. It reviews the timelines, motivations, scope, goals, assessment and governance mechanisms characteristic of national quantum strategies. The paper also identifies the main policy objectives of frequently used instruments, including institutional funding and project‑based grants for public research, grants for business research and development, public procurement, and equity financing.
CCI Urges PM Carney to Convene Canadian Business Leaders to Chart Sovereign Industrial Strategy
CCI
This post advocates for the creation of a Canadian Sovereign Industrial Strategy to respond to the Trump Administration's recent National Security Strategy. The post notes that "for Canada, this represents a profound moment for our national geopolitical strategy and a shift in the operating environment. In a world where intangible assets, AI & data, and dual-use technologies are determining economic advantage and national resilience, sovereignty and prosperity depends on homegrown companies that are capable of scaling globally, defining standards, and positioning themselves into value chains in global markets. Canada’s economic interests, our sovereignty and our national security are no longer separable. Canada should be equally forthright about our own national interests. Sovereignty, prosperity and resilience of our country will rest on our ability to build, scale and retain Canadian companies that generate value at home, strengthen our supply and value chains, and give Canada strategic leverage and sovereign capability. It will also rely on building critical infrastructure like sovereign compute and cloud capacity."
Policy Digest
Powering Progress: Toward a Better Understanding of Canada's Green Economy
Peter Foltin, Bassirou Gueye and Jiang Li, Statistics Canada
Despite Canada’s ambitious climate goals and the global transition toward more sustainable economic development models, empirical evidence on how the green transition affects Canada’s productivity growth is limited because of a lack of comprehensive data. This study fills this gap in two steps. First, it constructs a first-of-its-kind measure of green intensity at the detailed industry level by synthesizing multidimensional data, including information on green outputs and processes. Second, it investigates productivity dynamics by decomposing productivity growth using this newly developed green index. The paper finds that high green-intensity industries are concentrated in professional, scientific and technical services; construction; and agriculture, forestry, fishing and hunting. They maintain substantial productivity advantages of 50% to 60% over those in low green-intensity industries. They also demonstrated superior economic resilience during the COVID-19 pandemic. Moreover, the drivers of productivity growth vary across greener industries, with the service sector relying more heavily on market dynamism and reallocation and the goods sector relying more on within-firm improvements. Overall, this study offers a comprehensive measurement framework for policy makers to understand the implications of the green transition. The authors summarize the findings as follows:
A novel index to measure green activity
To assess green activity, the study introduces a composite index of green intensity at the four-digit level of the North American Industry Classification System. The index integrates eight indicators capturing green outputs and processes—such as the production of green goods and services, the prevalence of green tasks in occupations, the investment in clean technologies, and the export of environmental goods. Based on this index, 285 industries were classified into three categories of green-intensity: low, medium and high. Of these industries, 6.7% fell into the high green-intensity category, while 33.0% were classified as medium, and 60.4% as low.
Higher labour productivity and growth among high green-intensity industries
From 2016 to 2022, high green-intensity industries—including those in sectors such as professional, scientific and technical services; construction; and agriculture, forestry, fishing and hunting—showed the highest productivity measured by value added per worker. These industries were on average 51.7% more productive relative to low-intensity ones, while medium-intensity industries maintained a 29.1% advantage relative to low-intensity industries. Notably, the productivity gap between high and medium green-intensity industries grew from 15.5% in 2016 to 20.7% in 2022.
The study applies a framework to break down aggregate productivity growth into within-firm productivity improvements, between-firm reallocation of employment, and the effects of firm entry and exit. From 2016 to 2022, aggregate labour productivity across all industries rose by 12.8%, driven primarily by within-firm improvement (9.6 percentage points), alongside reallocation among firms (2.0 percentage points) and net entry (1.3 percentage points).
From 2016 to 2022, high green-intensity industries (+15.8%) led productivity growth, supported by balanced contributions from within-firm efficiency gains (contribution of 5.7 percentage points), reallocation of employment to more productive firms (5.5 percentage points) and positive net entry (4.6 percentage points). In contrast, productivity in low green-intensity industries rose by 13.0%, mostly from within-firm efficiency gains (9.2 percentage points), while medium-intensity industries grew by 11.7%, also driven by internal gains (11.3 percentage points).
Greater resilience through economic disruptions
During the first two full years of the COVID-19 pandemic (2021 and 2022), all groups saw declines in productivity. However, high green-intensity industries (-3.1%) experienced the smallest decline, compared with medium-intensity industries (-8.0%) and low-intensity ones (-11.9%). Uniquely, only the high green-intensity group registered positive, though slight, contributions from employment reallocation (+0.7 percentage points) and net entry (+0.2 percentage points), highlighting their relative resilience in the face of economic disruption.
Events
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This newsletter is prepared by Travis Southin.
Project manager is David A. Wolfe