Foreword

According to OECD definitions of rural regions, around one in five Canadians live in Canada’s rural regions, which accounts for 97.1% of total Canadian landmass and over a third (36.4%) of the OECD’s overall rural regional landmass. Like most countries, rural regions have lower aggregate gross domestic product (GDP) than urban areas. Nevertheless, rural areas show signs of progress in Canada. The rural-urban income gap in 2020 was half the size it was in 2000 and, in 2019, average annual labour productivity in rural areas (116 000 GDP per worker) was higher than urban areas (112 000 GDP per worker). Inequalities in high-technology innovation between rural and metropolitan regions are also relatively low compared to OECD countries. From 2016 to 2020, the difference in average patenting intensity, measured as the number of patents per capita, between rural remote regions and metropolitan regions was 0.08 in Canada, compared to an OECD average of 0.15.

However, this largely reflects relatively poor overall national innovation performance if we use patenting as a proxy for high-technology innovation. In 2020, patenting intensity in Canada, for example, stood at only 0.09 patent applicants per 1 000 inhabitants compared to an OECD average of 0.14. Mirroring this is relatively weak investment in research and development (R&D). Canada’s gross domestic expenditure on R&D was 1.7% of GDP in 2021, well below the OECD average of 2.7% and lower than its share in 2010 (1.83%). The share of firms reporting R&D investment is also weaker in rural areas (0.8% in 2018) than in urban (1.1%) areas.

While rural areas are underperforming relative to the rest of the OECD and the national average regarding high-technology innovation statistics, much of this reflects the different characteristics of firms in rural areas as well as more challenging labour supply conditions. In that sense, it is important to stress broader notions of innovation that are more pertinent to rural areas, in particular, innovation closely rooted in entrepreneurship and, in turn, policies to support the formation of new firms and scale-up of existing firms, as well as upskilling programmes for the labour force.

Strengthening rural innovation is especially important in Canada because rural regions are dually impacted by demographic change, with slower population growth and an ageing population, and climate change, with places in the Canadian Arctic warming at close to twice the global rate. There is scope to boost innovation to address these challenges, including adapting federal, provincial and territorial programmes to better support rural entrepreneurs and green innovation initiatives, calling on good practices from Indigenous knowledge and exemplary rural firms.

This report draws on lessons from similar research in other OECD countries to provide a diagnosis of rural innovation in Canada as well as policy recommendations to support it, with a particular emphasis on innovation to address climate change.