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Business Innovation1.4 International Comparison

1.4.1 Global Innovation Index (GII) cross-country comparison

The GII is a high profile international index summarising factors affecting innovation outcomes and is often cited in cross-country comparisons. The GII score on which countries are ranked combines seven pillars. Each pillar is a combination of three sub-pillars which are a weighted average of different indicators. Australia ranked 22nd out of 129 countries on the GII in 2019[31] and as such is classified to be among the Innovating Leaders --- countries with mature innovation systems that perform well on innovation relative to GDP. The GII and other summary indices should be interpreted with caution, due to inherent limitations including the absence of a theoretical foundation to guide the selection of indicators, the use of outdated and missing data values and low sampling for surveys that provide qualitative data. These limitations may impact Australia's results including a downward trend for knowledge and technology outputs (as primary commodities dominate Australian exports) and upwards in creative outputs (as Australia is an English-speaking nation with a relatively small population).

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1.4.2 Global Innovation Index (GII) Innovation Input sub-index

The GII innovation input sub-index is comprised of five pillars that capture elements of the national economy generally regarded as innovation enablers --- such as institutions, infrastructure, or human capital and research. Australia has ranked well on the GII innovation input sub-index since 2011, moving between 10th and 15th among 126 to 143 countries, depending on the year, and in 2019, Australia ranked 15th out of 129 countries and was above the OECD+ average. Australia was strongest in the market sophistication (8th) and human capital and research pillars (10th).[32]

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1.4.3 Global Innovation Index (GII) Innovation Output sub-index

The GII innovation output sub-index provides information about outputs that are the result of innovative activities occurring in the economy. There are two output pillars, namely knowledge and technology outputs and creative outputs, both of which are weighted by GDP. In 2019, Australia ranked 31 out of 129 countries in the GII Innovation Output sub-index. This is relatively low compared to Australia's GII innovation input ranking of 15 out of 129 countries.[33] In line with the focus of the GII report on energy, Australia may see an improvement in its GII innovation output sub-index ranking in the future, given the potential opportunities for disruptive energy storage technologies.

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1.4.4 Product/process innovators that are R&D active as a percentage of product and/or process innovative firms

All firms engaged in R&D are innovation-active but not all innovation-active engage in R&D. R&D is a specific type of innovation activity and it can be costly, requiring specialised expertise and equipment. In the business enterprise sector, R&D activity is industry-specific --- important to some industries (e.g. Manufacturing) but not to others (e.g. Accommodation and Food). The overlap between innovation and R&D activity provides a proxy measure of the extent to which high-value technological innovation may be occurring. Australia has a relatively low proportion of firms in this category compared to other OECD countries (25.0 per cent in 2014-15 compared to 50.0 per cent for the latest available OECD average, respectively).[34] This partly reflects Australia's service-oriented industry structure and the diminishing share of manufacturing in output and employment. Service sectors tend to have low R&D expenditure and manufacturing continues to have the highest share of R&D expenditure (roughly a quarter of total in 2015-16).[35]

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