Canada’s innovation and entrepreneurship environment are central pillars of the country’s future growth and prosperity, and key drivers of global competitiveness. Improvements in business productivity, supported by increased business investment in R&D and technology, and increased capital investment would help grow fiscal revenue and economic capacity, key to enhancing the standard of living in Canada in the years ahead.
Reducing inequality as Canada grows is necessary to building shared prosperity. Income inequality poses a social, economic and political risk to OECD countries, including Canada, and is associated with decreased access to opportunity, and poor health and social outcomes.
Canada ranked 11th out of 34 OECD countries (tied) on income inequality in 2020.
Canada’s level of income inequality using the Gini coefficient was 0.28 in 2020 (0 represents perfect equality and 1 represents perfect inequality).
Top 10 most equal OECD countries.
Threshold: 10th in the OECD had a Gini coefficient of 0.278 in 2020.
Canada’s level of income inequality improved in 2020, decreasing to levels not seen in several decades. However, this change was largely due to pandemic benefits that were provided at the time and that are no longer active. Income inequality has since fluctuated. In early 2023, income inequality grew due to factors such as pressures related to inflation and high interest rates, which had a particularly negative impact on disposable income among low-income earners. Increasing cost of living has also placed pressures on low-income households.
Addressing high levels of household debt can improve economic growth and reduce barriers to Canadians’ choices on family size. Household debt reflects the economic vulnerability of households and their ability to weather an economic shock. It also represents a risk to the economy.
Canada ranked 25th out of 33 OECD countries on household debt in 2021.
Canada’s level of household debt was 185.2% of net household disposable income in 2021.
OECD average on household debt levels.
Threshold: OECD average level of household debt was 125.4% of net household disposable income in 2021.
Canada’s level of household debt grew in 2021, even before more recent increases in inflation and interest rates. Canada continues to have one of the highest levels of household debt among OECD countries. Canadians’ household debt recently exceeded the size of the country’s entire economy, which puts Canada’s economy at risk. However, not all debt is the same. The majority of household debt in Canada is tied to mortgages, which can help build wealth. Nonetheless, household debt was a major source of stress for many Canadians with a mortgage in 2023. Amid rising interest rates, the Environics Institute found that almost two in five Canadians with a mortgage were concerned about their ability to pay. There are signs that increasing numbers of Canadian consumers are encountering financial difficulties.
GDP per capita reflects total economic output per person and is an important measure of Canada’s overall prosperity, living standards, and economic well-being, though not its income distribution.
Canada ranked 15th out of 38 OECD countries on GDP per capita in 2022.
Canada had a GDP per capita of $61,380.60 USD in 2022.
Top 10 OECD countries on GDP per capita.
Threshold: 10th in the OECD was GDP per capita of $70,889.72 USD in 2022.
Canada’s GDP per capita increased in 2022 but the country still trails many in the OECD. It is projected that Canada will underperform in future years due to lagging productivity, with concerns that standards of living will not be sustained. Significant concerns have been raised about the effects of rapid population growth on GDP per capita. However, immigration can have a positive impact when the talent and skills of immigrants are fully leveraged through effective support for labour market integration. An increased proportion of immigrants in the labour market has been positive for GDP per capita in some provinces by helping to offset aging populations.
Growth and development of the Indigenous economy and business sector is essential to fostering reconciliation with Indigenous peoples and is a key driver of the economic future of Canada, as the Indigenous population continues to grow at a faster rate compared to Canada’s population overall.
In 2020, GDP attributable to Indigenous peoples was $49 billion.
Growing the Indigenous economy to $100 billion annually.
GDP attributable to Indigenous peoples in Canada has grown steadily over the past decade, making up 2.2% of Canadian GDP in 2020. There have been a growing number of ambitious Indigenous-led economic development projects in Canada in recent years, including resource projects in the Prairies and major residential development projects in Vancouver constituting fully new neighbourhoods. However, there is still significant room for the Indigenous economy to grow with the right supports. Challenges such as inadequate infrastructure and barriers to access financing can slow progress, though advancements are being made including through a new Canada Infrastructure Bank $1 billion equity loan program. The First Nations Financial Authority recently reached $2 billion in loans issued, another positive signal for Indigenous business growth.
As Canada pursues a path of population growth its population will become more diverse, and this diversity must be mirrored in leadership. Diversity contributes to firms’ productivity and innovation, especially at the leadership level.
Among public companies that disclosed diversity information, in 2022:
Meet federal government “50-30 challenge” objective of representation of 50% of women and 30% of other under-represented groups on boards.
There was a slight decline in the proportion of women and racialized individuals holding board seats in 2022 compared to the previous year. However, the proportion of board seats held by Indigenous peoples slightly increased. If current trends hold it could take almost a century for equal representation of women in management positions to be achieved. It is encouraging that a growing number of organizations have committed to increasing diversity, such as through the Black North Initiative which involves a pledge to grow representation of Black Canadians in leadership positions and on boards. However, more needs to be done to take action to effectively create change and cultivate diverse leadership in Canadian companies.
A growing population, with increased international talent and support for local entrepreneurs, can enhance business growth. High-growth firms make up a small proportion of firms in Canada but a more significant proportion of new jobs and GDP growth.
There were 14,070 high-growth firms in Canada in 2021.
Meet a federal government target to double the number of high-growth firms in Canada between 2015 and 2025.
There was an increase in the number of high-growth firms in 2021 compared to the previous year but growth remains slow overall. Nonetheless, there have been notable increases in the number of Canadian unicorn companies (which are private companies with a valuation of more than $1 billion) over the past few years – from three in 2020 to 19 in 2022. Challenges to scaling can be connected to broader obstacles facing businesses of all sizes. In 2023, these included increases in inflation, costs of inputs, interest rates and debt costs.
Competitiveness is a driver of Canada’s economic prosperity and signal of Canada’s attractiveness as a global jurisdiction and immigration destination. It reflects Canada’s ability to attract investment, foster innovation and spur economic growth.
Canada ranked 15th out of 64 countries in the 2023 IMD World Competitiveness Ranking.
Top 10 countries in IMD World Competitiveness Ranking.
Canada’s ranking on global competitiveness has slightly declined in recent years. Canada fell short in 2023 in particular on international trade, as well as government and business efficiency. Challenges to competitiveness identified in 2023 included continuing inflation, geopolitical tensions alongside a global energy crisis, severe weather events and constraints in labour markets. Canada has generally done well on some metrics of competitiveness, such as ease of starting a business and likelihood of attracting investment. However, Canada has also performed poorly in areas such as barriers to foreign investment and entry into the domestic market.
As Canada’s population ages, enhancing productivity is key to maintaining economic growth. Productivity is an important driver of attractiveness for investment and global competitiveness.
Canada ranked 18th out of 38 OECD countries on productivity in 2022.
Canada’s GDP per hour worked was $53.31 USD in 2022.
Top 10 OECD countries on productivity.
Threshold: 10th in the OECD was GDP per hour worked of $69.66 USD in 2022.
Canada’s productivity declined slightly in 2022, with GDP per hour worked falling below the OECD average. The trend of declining productivity continued at the start of 2023. There remain concerns that these trends will endure due to factors such as low use of technology by Canadian firms and limited innovation. Additionally, Canada continues to fall behind on investment in research and development, which is needed to increase technology adoption, innovation and productivity. Improvements in business productivity would help grow fiscal revenue and economic capacity, key to enhancing the standard of living in Canada in the years ahead.
Innovation is directly related to long-term economic growth as a key way to bolster productivity. Canada’s ability to innovate drives its competitiveness, standard of living and preparedness for the future.
Canada ranked 15th of 132 countries in the Global Innovation Index in 2023.
Top 10 countries in the Global Innovation Index.
Canada’s ranking on the Global Innovation Index remained the same compared to the previous year, though it improved in some areas including turning investments in innovation into tangible outputs. Canada has generally lagged other advanced economies on innovation which has wide-reaching impacts. Limited support and scaling of domestic firms remain key challenges with intellectual property produced in Canada often going to foreign firms. Canada has also fallen short on leveraging its diverse talent pool to unlock innovation in an inclusive way, with women and racialized Canadians facing barriers to success. Additionally, innovation is closely connected to national security, as scaling companies and growing the market share in advanced technology can help to support Canada’s future security.
Business spending on research and development is critical to creating an attractive environment for international talent. It is an indicator of the private sector’s support for innovation and whether firms are investing in developing new ideas, products, processes or services.
Canada ranked 22nd out of 34 OECD countries on business spending on research and development in 2021.
Canada’s business spending on research and development was 0.93% of GDP in 2021.
Meet a federal government target to keep pace with the OECD average on business spending on research and development.
Threshold: OECD average for business spending on research and development was 1.99% of GDP in 2021.
Canada’s level of business spending on research and development declined in 2021 and it is expected to continue to decline in future years. At the same time, less than 2% of Canadian businesses recently reported incorporating research and development in their business strategies. Canada has been identified as an outlier in the OECD in its significant dependence on tax credits to incentivize business spending on research and development. The early 2024 launch of a federal review of the Scientific Research and Experimental Development Tax Credit, one of Canada’s central supports for the innovation economy, could lead to positive change. Declining business investment in research and development has a detrimental impact on productivity and competitiveness, as such investments can help to enable more efficient and innovative processes.
Entrepreneurial activity is an important building block for the economic growth and job creation that is needed for Canada’s future prosperity.
Canada ranked 13th in total early-stage entrepreneurial activity out of 49 countries assessed by the 2022/23 Global Entrepreneurship Monitor.
Top 10 countries in the Global Entrepreneurship Monitor’s assessment of total early-stage entrepreneurial activity.
Canada’s ranking on total early-stage entrepreneurial activity (TEA) fell in 2022 compared to the previous year, though it still has one of the highest rates of adults starting or running early-stage businesses. Immigrants are more likely to start a business in Canada but face unique barriers such as access to financing and challenges with navigating the regulatory landscape. Entrepreneurs have become increasingly uncertain about starting a new business given an unaffordable housing market, rising interest rates and constraints in the labour markets. While Canada saw declines in TEA in 2022, some other countries surged ahead – with the United States outpacing Canada in 2022 for the first time in several years.
