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Topic 9: Innovation

Innovation – implementing new ways of doing things – can contribute to sustainable development by improving economic efficiency, reducing energy consumption, and making more efficient use of natural resources. Innovation, and the research and development that supports it, can generate more options for future generations.

While sustained economic growth can increase incomes and improve material well-being, it can also result in increased use of finite natural resources and undesirable environmental impacts. One of the crucial issues around the sustainability of economic performance is the extent to which economic activity and growth can occur without unacceptable environmental and social impacts. Innovation, whilst driving economic growth, can support the development of more environmentally friendly technology and improve environmental and social outcomes.

Main results

Research and development (R&D) is one of a number of different innovation activities and underpins innovation by providing a platform for successful innovative outcomes. Its significance in the New Zealand economy has increased slightly since 2000, as has the number of personnel engaged in R&D. Nevertheless, expenditure on R&D in relation to GDP is less than that of most other OECD countries (OECD, 2007).

In 2007, around half of all New Zealand businesses had engaged in some form of innovation. About a third of these businesses had engaged in innovation likely to reduce the impact of economic development on the environment.

Table 9.1
Innovation indicators – key results

 Innovation indicators - key results.

What the indicators tell us

Research and development expenditure as a proportion of GDP (indicator 9.1)

R&D is important for economic growth and for sustaining a dynamic New Zealand economy capable of competing successfully on the international stage.

New Zealand’s R&D expenditure as a proportion of GDP fluctuated between 1998 and 2008, with a low of 0.99 percent in 2000 and a high of 1.20 percent in 2008 (see figure 9a). This level of expenditure is low in comparison with other OECD countries. In 2004, the OECD average was 2.21 percent and Australia’s was 1.76 percent.

 Research and development expenditure as a proportion of GDP, by reference year.

Research and development expenditure by purpose (indicator 9.2)

In both 2004 and 2006, the three main purposes of R&D expenditure were industrial development; agriculture, forestry, and fishing; and development of infrastructure, respectively.

The proportion spent for the purpose of health increased from 13.3 percent in 2004 to 14.7 percent in 2006. The proportion spent on care of the environment, and Earth and atmosphere together amounted to 11 percent of R&D in 2006, similar to the proportion reported two years earlier (see figure 9b).

 Research and development expenditure by purpose, by reference year.

Personnel involved in research and development (indicator 9.3)

An additional perspective on levels of R&D activity is the number of personnel involved. The number of researchers, technicians, and support staff also contribute to the level of skill and knowledge of New Zealand’s human capital (see also topic 10).

The number of people involved in R&D increased 7 percent from 2004 to 2006. However, there were variations for different occupations. The number of researchers dropped slightly (down 1. 7 percent), although student researchers rose 22.8 percent, resulting in an overall increase in total researchers. A similar pattern occurred for technical and support staff, with the number of technicians decreasing by 4.2 percent but the number of support staff increasing by 9.4 percent (see figure 9c).

 Personnel involved in research and development, full-time equivalent employees by occupation.

Rate of innovation by type (indicator 9.4)

The OECD’s Innovation Strategy (OECD, nd) acknowledges innovation as a driver of economic growth and as being able to provide solutions to global challenges such as climate change and renewable energy. Investing in innovation in the environmental sciences can provide a catalyst for economic growth while at the same time delivering major social benefits.

This indicator provides information on the rate of innovation, by type, taking place in New Zealand businesses.

In 2007, 47 percent of New Zealand businesses were engaged in innovation (see figure 9d). The innovation rate is the proportion of businesses that undertook any activity during the previous two financial years that resulted in the development or introduction of new or significantly improved:

  • goods or services (products)
  • operational processes
  • organisational or managerial processes
  • marketing methods.

In 2007, 33 percent of businesses engaged in innovation did so to reduce environmental impact, while 25 percent did so to reduce energy consumption. These proportions are above the 22 percent reported for each purpose in 2005.

 Innovation activity rate by innovation type, last two financial years at August 2005 and 2007.

About the indicators

Research and development expenditure as a proportion of GDP (indicator 9.1)

R&D is defined as “creative work undertaken on a systematic basis in order to increase the stock of knowledge. Any activity classified as R&D is characterised by originality. Investigation is a primary objective” (OECD, 2002).

The information for this indicator is from the Research and Development Survey, conducted every two years by Statistics NZ and Ministry of Research, Science and Technology (MoRST). The survey measures the level of R&D activity, employment, and expenditure by private sector enterprises, government departments, government-owned trading entities, and universities. The most recent results are for 2008 (Statistics NZ and MoRST, 2009).

The financial years reported for the business, government, and university sectors differ. For this reason, the periods reported are referred to as ‘reference years’. Furthermore, in the 2004 survey, data for universities was collected for the financial year ended December 2004, but in the 2006 survey, the period was set back to the year ended December 2005. Therefore, as there is only a one-year difference between the 2004 and 2006 reference periods for the university sector, the overall growth of R&D as a proportion of GDP between the two years is likely to be slightly underestimated.

The GDP figures used for comparison are for the year ended March.

Research and development expenditure by purpose (indicator 9.2)

The information for R&D by purpose is from the Research and Development Survey (Statistics NZ and MoRST, 2009). The breakdown of research by purpose provides an indication of the socio-economic objectives guiding R&D in New Zealand. This shows which sectors will benefit from the R&D work carried out.

Personnel involved in research and development (indicator 9.3)

The Research and Development Survey collected information on R&D personnel on both a headcount and full-time equivalent (FTE) basis. The FTE measure takes into account each person’s total working time spent on research activities. For example, a full-time employee spending half their time on research activities during the year would contribute 0.5 towards the FTE measure.

Rate of innovation by type (indicator 9.4)

Information on business innovation is from Statistics NZ’s 2008 report Innovation in New Zealand: 2007.

Innovation data is collected in accordance with international guidelines (OECD, 2005) and is defined as the development or introduction of new or significantly improved:

  • goods or services introduced onto the market
  • operational processes, that is, methods of producing or distributing goods and services
  • organisational or managerial processes resulting in significant change in business strategies, structures, or routines
  • marketing methods that gain entry into new markets or increase the appeal of goods and services for specific market segments.

Table 9.2
Innovation indicators – defining principles

 Innovation indicators - defining principles.

See part C for the complete list of defining principles for all indicators.

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