Innovation matters. It is the powerhouse of economic growth. But in recent decades economists tended to put it behind productivity in terms of importance. Multiple studies have shown that innovation is a vital driver of growth, but does a narrower focus on research and development (R&D) really make a difference?
A study in 2015 by the OECD club of developed nations found R&D spending had a “positive and statistically significant impact” on productivity and growth. Another study by UK’s NIESR think tank noted that “both R&D investment and innovation significantly boost productivity growth”. Its research suggested a £1 increase in R&D investment would yield a return of up to £0.20.
In short, if you care about economic growth, you should care about productivity growth, which in turn means you should also care about innovation and R&D. But how to define innovation and how do we measure R&D?
This is not as straightforward as you might think. Back in 2021, the government’s statisticians raised some eyebrows when they redefined their measure of R&D spending to include a better estimate of what private businesses spend on research.
