Enhancing Rural Innovation in Canada

1. Assessment and recommendations

Canada has the largest land mass among OECD countries, with the vast majority of its territory classified as rural. It has a stable, market-based economic environment that coexists with a system of taxes and benefits that promotes equality and redistribution. In fact, in 2020, in Canada, interpersonal income inequality (as measured by the Gini index) was at 0.28, lower than the OECD average in 2020 (0.31) and much lower than in its North American OECD peers, Mexico and the United States. Moreover, the income gap between rural and urban1 households has been halved over the past 2 decades, from 12% in 2000 to just 6% in 2020.

Despite this progress, geographical disparities in high-technology (high-tech) innovation are present in Canada, with metropolitan areas displaying higher innovation performance than rural regions, which is consistent with the OECD trend. In Canada, however, the gaps are relatively smaller, especially in remote rural regions, confirming the active contribution of rural Canada to national innovation performance. Analyses based on OECD data which classify small regions2 into regional typologies from 2016 to 2020, show that the gap in patenting intensity3 between rural regions and national averages is smaller in Canada than in OECD countries. On average, in OECD countries, rural remote regions had 8.5 times lower patenting intensity than metropolitan regions (0.02 patents per 1 000 individuals in rural regions, as compared to 0.17 in metropolitan regions). In Canada, patent intensity is also lower in remote rural regions than in metropolitan regions but the difference between regions is less stark. From 2016 to 2020, there were an average of 0.03 patents per 1 000 inhabitants in non-metropolitan rural remote regions of Canada, which is less than approximately 4 times the average of metropolitan regions with 0.11 patents per 1 000 individuals. Overall, the gap between rural remote and metropolitan regions in Canada is a quarter less than the gap in OECD countries (0.08 gap in Canada versus 0.14 gap in OECD countries). Although patent intensity is just one form of innovation, this trend demonstrates the relative differences between one type of innovation activity across geographies in Canada.

More can be done to boost high-tech innovation in Canada. Although Canada is in the top quartile of OECD countries in terms of high-tech innovation, ranking 9^th out of 37 OECD countries in total patents in 2020, patenting intensity (measured as patent applications per 1 000 people) is close to the 50^th percentile of OECD countries. Canada had 0.085 patent applicants per 1 000 inhabitants in 2020, compared to an OECD average of 0.14. The uptake of research and development (R&D) investment activities is also low compared to other OECD countries. Canada’s gross domestic expenditure on R&D was 1.7% of gross domestic product (GDP) in 2021, well below the OECD average of 2.7%. In addition to room to grow in high-tech innovation, the development of new businesses that provide new services or products and participation in R&D investment in rural areas remains relatively low. For example, if the rate of new business creation in Canada’s rural areas had been on par with the rate in urban areas, there would have been close to 8 100 new firms in rural areas in 2018.

Promoting green innovation in Canada’s rural regions is important for two reasons. First, in 2022, over half (52%) of total greenhouse gas (GHG) emissions in Canada were attributed to production and economic activities in remote regions. This was largely a result of industrial activities, including energy exploitation and processing (19% of the total) and transportation activities (14%). In comparison, rural regions, on average in OECD countries, contribute much less, about 16.5% of production-based GHG emissions, despite still emitting the highest per capita GHG. Second, Canada’s most remote regions, including the Arctic and its coastal areas, are particularly vulnerable to climate change: some are warming at over twice the global rate.

This report includes a scene-setting chapter on rural Canada, a chapter on the state of rural innovation policy in Canada and a special chapter focusing on green innovation. The research for the report reflects a combination of statistical analysis, desk research and case study visits to Emerald Park/Regina (Saskatchewan), Fogo Island (Newfoundland and Labrador), the Gaspé Peninsula (Quebec), Inuvik (Northwest Territories) and Kenora and Kincardine (Ontario).

Assessment

Innovation in Canada is supported by an enabling policy environment and an educated labour market, yet challenges still remain for increasing innovation activity

Innovation is multifaceted and can include high-tech innovation as well as innovation in processes and, more broadly, in the way programmes and policies are delivered. Rural areas close to cities can benefit from knowledge spillovers and have more diversified economies, while more remote areas tend to have smaller and less diversified economies and labour markets. This poses a challenge to improve opportunities across different geographies, as access to innovation networks and economies of scale are critical for some types of innovation. In the absence of density and access to resources, generic business support services, social and community-based innovation have a greater role to play to support innovation. It is, therefore, important that both direct and indirect innovation policies in rural areas are designed to take into account the context in which innovation takes place.

Canada has many of the requisite conditions for innovation but the uptake of some innovation R&D incentives is still a challenge among rural firms

Supporting national framework conditions for innovators and entrepreneurs in Canada is strong. Canada has a relatively large share of individuals with tertiary education in information, communication and technology programmes (OECD, 2022[1]; 2022[2]) and an important inflow of talented immigrants who help fill skills gaps (OECD, 2022[3]). Federal support for fostering bottom-up initiatives is reinforced by an ecosystem of institutions that includes universities, research institutes, public-private partnerships, community development and Indigenous people’s development programmes.

Despite a host of federal support mechanisms, challenges remain in encouraging the uptake of government support for innovation. Canada’s investment in research and innovation as a share of total domestic expenditure (1.7%) in 2021 is well below the OECD average (2.7%) (OECD, 2023[4]) and lower than its share in 2010 (1.83%). These challenges are well recognised and successive federal governments have made persistent efforts over the years to address them.

Indicators measuring the uptake of R&D tax incentives in different geographies show that there may be more acute challenges for innovation in rural Canada, despite the fact that rural remote regions are lagging in relation to the national performance, but less so when compared to other OECD countries in terms of patent-based innovation. While the majority of firms in Canada (99%) reported that they had not spent any funds on R&D in 2018, the proportion of firms in urban areas reported as participating in R&D activities was slightly higher (1.1%) compared to those in rural areas (0.8%).

While Canada has policies and programmes that support the development of various types of firm‑university or research linkages, there are still challenges to their uptake in rural areas. Post-secondary school-firm linkages are a catalyst for supporting the upgrading and upskilling of rural individuals and firms that contribute to “user-driven” innovation but these linkages could do more to: i) facilitate “demand-driven” innovation;4 ii) bring innovative ideas to commercialisation; and iii) provide tailored upskilling and reskilling opportunities for rural areas. Nevertheless, some places, such as in the province of Quebec, demonstrate how a more defined and integrated approach to promoting university-firm linkages through research institutions can serve rural areas and Indigenous communities while supporting innovation and climate change goals.

Innovation support needs to go beyond direct science- and technology-based innovation support mechanisms

Low R&D investment and patenting statistics do not necessarily mean that certain geographical areas are not involved in innovation. In fact, many forms of innovation, including process and social innovations, are often not captured by these types of statistics. For example, in Quebec – a large province with a sizeable rural population and a low share of R&D and patents – 78% of firms self-report that they participated in innovation between 2017 and 2019. The vast majority of innovation in firms (around 71%) occurs through process innovation, while 51.3% said they focused on product innovation.

In the context of long distances and low density, enabling the creation of networks for innovators is crucial. The public sector is often critical for creating networks to facilitate firm-to-firm and firm-to-research linkages research and innovation.5 In remote rural areas, encouraging system entrepreneurs, social entrepreneurs and public sector innovation can bring systemic change to rural development and innovation. Often, these types of entrepreneurs do not develop for profit alone but also have a purpose that includes well-being outcomes and the development of more sustainable and robust local economies (OECD, forthcoming[5]).

Rural Canada is an engine of economic opportunity and innovation, but rural businesses are still at a disadvantage when compared to their urban counterparts

About 1 in 5 people in Canada live in rural areas,6 which makes up about 98% of the country’s land mass. In 2018, Canada’s metropolitan regions produced almost three-quarters of total GDP (74%), meaning that rural areas accounted for around one-quarter of economic activity. Compared to other large OECD countries such as the United States, the contribution of rural Canada is substantial. In the United States, non-metropolitan7 GDP accounted for approximately 10% of total GDP in 2020.

Labour productivity, often used as a proxy for innovation, has been growing and is higher in rural areas than in urban areas of Canada. Labour productivity was higher in rural areas than urban areas in 2019.8 Moreover, productivity in rural areas grew by 16% between 2011 and 2019. While the growth was positive, it was not as strong as labour productivity growth in urban areas (36%).

Innovation in the growing trade and services sector lags in rural areas, while agricultural firms in rural areas are more innovative than their urban counterparts

Rural areas are often seen as being primarily agricultural. This argument is outdated in most OECD countries. In the period between 2010 and 2019, the largest employers in rural Canada were wholesale retail and trade (13%) and manufacturing (11%). However, as a share of all firms, the largest sectors are trade and services (58%), followed by agriculture, forestry and fishing (17%). These are the same sectors with the newest firms. However, the rural trade and services sector lags in terms of innovation. While only 1% of all firms applied for the national R&D tax incentive scheme between 2010 and 2019, only 21% of firms that applied for R&D incentives were in trade and services in rural areas, as compared with 55% in the urban trade and services sector.

In part, this reflects the different composition of the rural and urban economies, with urban areas having higher shares of trade and services (74%) than rural areas (58%). However, the composition of places only partially explains the trend, as over half (55%) of firms that applied for the R&D tax incentive in urban areas were in the trade and services sector, while only one-fifth (21%) of firms that applied to the R&D tax incentive in rural areas were in the trade and services sector.

On the other hand, the primary sector (agriculture, fishing, forestry and hunting) is highly innovative in rural areas. More than two-fifths of all firms that applied for the R&D tax incentive in rural areas are in the primary sector (44%). By comparison, only 4% of innovative firms in urban areas are in the primary sector. The primary sector also continues to generate new firms, with close to 17% of all new start-ups in rural areas, compared with 1% in urban areas.

There is a higher proportion of small firms involved in R&D-type innovation in rural areas than in urban areas

Most rural firms are small. Between 2010 and 2019, 85% of firms in rural Canada were micro or non‑employer firms (with fewer than 5 workers). Despite this, the share of micro and small firms that innovate based on R&D tax relief application data is higher in rural areas than in urban areas. The largest share of firms involved in formal R&D processes in rural areas tends to be micro (31% for micro firms with 1-4 workers) or small (27% for small firms with 5-19 workers). By comparison, in urban areas, the largest share of firms involved in formal R&D processes are small (29% for small firms with 5-19 workers), followed by medium-sized (25%, 20-99 workers) and micro firms (25% with 1-4 workers).

However, when controlling for other factors, larger firms are still more likely to innovate

Although descriptive results suggest that small firms tend to be more involved in innovation activities in Canada (as in other OECD countries), this is likely due to composition effects (e.g. large share of small firms in rural areas). Controlling for other firm characteristics such as sector, international linkages and ownership, the largest firms (100 or more employees) tend to innovate more than smaller firms in Canada. This is consistent in both rural and urban areas. Given this size trend, larger firms still have an increased propensity to innovate in rural areas compared to urban firms. This is consistent with findings that larger firms tend to innovate (Acemoglu et al., 2023[6]), suggesting that helping firms scale up is critical to foster innovation.

Unlike their urban counterparts, rural firms tend to be relatively older when they start investing in R&D

Firms in rural Canada are older than those in urban areas. Almost half of all firms in rural Canada have been in business for more than ten years. Rural Canada has a larger share of mature (11-30 years) and old (30 years or more) firms than urban areas over the period 2005-19. Urban areas have a higher proportion of start-ups (16%) than rural areas (12%) and a higher proportion of young firms – 2 to 5 years of age – (24%) than rural areas (19%).

Canadian rural firms tend to be older than those in urban areas when they start participating in formal innovation. Among firms that have applied for R&D tax incentives in Canada, mature and old firms (between 11-30 years old and 30 years and over) account for the largest share of firms that have participated in formal innovation activities: 48% in rural areas and 37% in urban areas. In contrast, in urban areas of Canada, relatively younger firms participate more in formal innovation activities than the oldest (11 years or more) and youngest firms (less than 5 years), compared to rural areas.

The peak age at which firms are likely to innovate is older9 (between 11-30 years) in rural areas than in urban areas. For younger firms (2-5 years), the probability of innovating is 0.16 in urban areas and null (non-significant) in rural areas. The highest probability of a firm innovating in rural areas is in its mature age (11-30), where the probability is 0.105, compared with firms that have more than 30 years of operation. Despite the relatively higher probability of rural firms innovating when they are older, urban firms still have an advantage at older ages. Firms in urban areas in this same age group are more likely to innovate than rural firms (0.195).

International linkages are crucial for rural firms but there is still a rural disadvantage in terms of how access to international markets affects innovation

Rural firms are less connected to international markets. Only 5% of rural firms participate in trade, compared to 7% of urban firms. However, a higher proportion of rural start-ups (0.71%) export than in urban areas (0.56%). While comparative data are not available, a recent study from the United Kingdom also found that there is a marginally higher proportion of firms in urban areas that export to rural areas (Mole et al., 2022[7]).

At current levels in rural areas, 1 additional exporter is associated with a 0.01% increase in aggregate export values. On the other hand, while most firms that export are located in urban areas, at current levels of firm activity, the returns to increasing the number of exporting firms in urban areas are not statistically significant.

Getting rural Canadian firms to their first export partner is particularly beneficial. In rural Canada, close to 82% of firms have only 1 export partner country. This is a higher share than in urban areas. Increasing the share of rural firms that start exporting is associated with a substantial increase in export values. By comparison, the relationship is not as clear in urban areas, where the correlation between an increase in the share of exporting firms and trade value is spurious (close to zero and with lower explanatory power).

Export activities are correlated with innovation, despite a lower association for rural firms

Access to international markets can encourage innovation. A remarkable 41% of firms in rural areas that applied for R&D tax incentives were engaged in export or import markets. Nevertheless, this figure was higher in urban areas (52%). Furthermore, in urban areas, participation in import and export markets is associated with a 0.68 higher probability of participation in formal innovation, while the probability falls to 0.56 for rural firms.

International linkages through foreign ownership, and hence presumed foreign direct investment, are less clearly direct contributors to innovation in rural areas. While there is some significant relationship (correlation) between foreign ownership and innovation, there is no discernible (statistically significant) association between foreign ownership and innovation in rural areas. However, in urban areas, having a foreign owner increases the probability of participating in formal innovation activities by 0.175.

Indigenous-owned firms, while generally small, are innovative and participate significantly in export markets

Indigenous entrepreneurship is the creation, management and development of new ventures by Indigenous peoples for the benefit of Indigenous peoples. This encompasses both profit-generating activities and those pursued for the benefit of the community. An OECD (2020[8]) report using data from the 2016 Aboriginal Business Survey found that a higher share of Indigenous businesses introduce new products/services or new production/delivery processes relative to the broader Canadian small business sector. Indigenous businesses are also reported to be more than twice as likely to have introduced a new product or service over the prior three years and nearly three times more likely to have brought in new ways of doing things than the broader Canadian business sector. While Indigenous businesses tend to be small and, like all small businesses, have a relatively lower propensity to export, the report finds that Indigenous businesses are more than twice as likely as all small businesses to export, linking these to activities in the arts, entertainment or accommodation and food service industries.

Managing demographic change is critical to better targeting policies for innovation and firm creation

Canada, like many other OECD countries, is facing demographic challenges. The rural population is growing in numbers but at a slower rate than the urban population. While this is not a unique trend, the loss of the relative share of the rural population in Canada is high, as compared to the OECD average. Between 2000 and 2020, 31 out of 38 OECD member countries experienced a demographic decline in rural areas. Between 2000 and 2020, the share of the population in Canadian cities grew by 6.8 percentage points, while the population share in rural areas decreased by 3.1 percentage points. This compares with an OECD average of almost half the gain in cities (3.6 percentage points) and a smaller decline in rural areas (2.3 percentage points).

As in most OECD countries, the rural population is getting relatively older. In 2022, the average age of the rural population was 43.8, compared to 41.3 in urban Canada. This was due to a greater loss of younger people of working age rather than a strong increase in the share of older people of working age. Rural areas had a nearly 6% higher share of individuals aged 55 and over in employment compared to urban areas.

Between 2010 and 2020, the share of young working-age individuals (15 to 29 years) fell by 2% in non‑metropolitan regions of Canada, which was more than in metropolitan Canada, where the share of young working-aged individuals fell by 1.1%. The decline in the share of younger working-age individuals was greater than the average for OECD metropolitan (0.16%) and non-metropolitan (0.7%) regions.

As individuals get older, they are less likely to start a new firm in both urban and rural areas

The oldest working-age group (55 to 64 years) is the least likely to start a firm in both rural and urban areas. The findings on age and firm births are relatively consistent between rural and urban areas. In rural areas, the probability of starting a firm is higher for those aged 15-24 (0.23) than for older age groups (0.19 for those aged 25-44 and 0.086 for those aged 45-55). However, the same-aged person is more likely to start a firm in urban areas than in rural areas.

More can be done to support Indigenous entrepreneurship

Around 60% of Indigenous peoples lived in rural areas in 2016, which was 33 percentage points higher than the share of non-Indigenous peoples living in rural regions. According to the 2011 National Household Survey, approximately 43 000 First Nations, Inuit and Métis individuals in Canada own businesses across the country. The number of Indigenous businesses increased by 11% between 2009 and 2018. Despite progress, the number of non-Indigenous businesses increased by 17% over the same period of time. Furthermore, the rate of business ownership among Indigenous working-aged populations is lower than for the rest of the Canadian population. In 2018, there were 18 Indigenous entrepreneurs per 1 000 Indigenous individuals, whereas there were 56 entrepreneurs per 1 000 individuals among the rest of Canadians. In 2009, the gap between Indigenous and non-Indigenous peoples business ownership rates was 26 businesses per 1 000 individuals. By 2019, it grew to close to 38 businesses per 1 000 individuals. In other words, if the rate of entrepreneurship among Indigenous peoples was the same as the rate for non-Indigenous peoples, there would be almost 38 more Indigenous entrepreneurs per 1 000 Indigenous peoples in 2019.

Women in rural areas are more likely to start a firm but less likely to apply for R&D tax incentives

Women are more likely to start a new firm in rural areas than in urban areas, despite their lower participation in employment. The probability of starting a firm is higher for women (as compared to men) in rural areas (0.018) but not in urban areas. In urban areas, the probability of starting a firm, relative to men, is negative for women (‑0.005). Despite this positive association with starting new endeavours in rural areas, majority women-owned firms have a lower probability of benefiting from formal innovation (R&D) tax incentive schemes than men in both rural and urban areas. While it is unclear whether this is due to the type of businesses women start or whether there are challenges in accessing (applying for) the tax incentive schemes, understanding the challenges faced by women innovators will be a crucial step in increasing the potential of women entrepreneurs.

Immigrants are relatively more entrepreneurial and innovative than the Canadian-born but are less likely to start a firm in rural areas

Canada is attracting increasing numbers of immigrants, many of whom contribute positively to firm formation and innovation. In both urban and rural areas of Canada, immigrants are more likely to start a new firm than Canadian-born populations but the likelihood is lower in rural areas (0.124) than in urban areas (0.162).

Once a firm is established, owners with immigrant backgrounds are more likely to participate in formal innovation. For example, firms in rural areas where the majority of owners are immigrants are more likely to engage in formal innovation (0.226) than those with the majority of owners are Canadian-born. Conversely, the association is negative in urban areas (-0.200). In addition, firms with a higher share of immigrants in the workforce tend to be very positively associated with formal innovation activity. This positive association between the share of immigrants in the workforce and formal innovation is stronger in rural areas (0.44) than in urban areas (0.321).

Green innovation is an important part of the answer to addressing Canada’s climate challenges

Canada’s rural regions have a key role to play in mitigating and adapting to climate change. As in other OECD countries, rural remote regions in Canada contribute more to total and per capita production-based GHG emissions than any other regional type. No Canadian region is in line with the United Nations target of reducing the per capita carbon footprint to around 2 to 2.5 tonnes of carbon dioxide (CO₂) by 2030 and most large (TL2) regions are also above the OECD average of 11.5 tonnes of CO₂. Emissions are highly uneven and concentrated in a few provinces, with some emitting roughly six times the average of others.

Indigenous peoples and nations are essential leaders in green innovation

Approximately 1 807 250 individuals in Canada self-identify as Indigenous (corresponding to 5.0% of the total population) in 2021 (Statistics Canada, 2021[9]). Indigenous peoples govern significant territories. For example, under modern treaties, Indigenous Nations control over 600 000 square kilometres of land, hold constitutionally protected Aboriginal and Treaty Rights, and participate in co-management regimes for natural resources, energy and transportation infrastructure projects. Recognising this, Canada has made firm commitments in plans and legislation to advance and support self-determined Indigenous Climate Action and Indigenous Climate Leadership.

The Canadian government has made important progress in supporting green innovation but challenges remain for rural small and medium-sized enterprises (SMEs) to engage in green innovation

The Government of Canada has significantly increased its support and ambition for green innovation. Over the past 5 years, Canada has more than doubled its cleantech spending to CAN 786.8 million. In 2022, it released key policy documents defining the country’s path to net zero, including a focus on clean procurement. Despite this progress, Canada still lags behind other major OECD economies in terms of green R&D spending and patent generation.

Despite the pressures on rural regions, conventional green innovation support and strategies are, in many cases, largely place-neutral and likely better suited to urban economies. In many cases, they fail to address the specific needs, opportunities and challenges that exist in different geographies and regions. In addition, many rural SMEs face challenges in adopting green business approaches and engaging in green innovation. These hurdles include a lack of awareness, information and knowledge about changing environmental requirements; limited availability of resources for greening, such as skills, finance and technology; and uncertainties in markets and policies.

The range of support available to rural entrepreneurs is complex and many programmes may not meet their needs

Like other federal countries, Canada has a wide range of national, provincial and territorial policies to support innovation and entrepreneurship. As a result, entrepreneurs and firms in Canada navigate this multi-level governance landscape as they seek support for business development and innovation from a variety of sources, including federal government line department programmes, federal regional development agency (RDA) support, provincial and territorial programmes and, in some cases, local government support. There are also many different Indigenous governments, Indigenous development corporations, Tribal Associations and Indigenous organisations with innovation and entrepreneurship policies and services. In many cases, municipal, provincial, territorial and federal governments devolve responsibility for delivering funding programmes to non-profit community organisations. In federal countries such as Canada, co-ordinating support mechanisms is critical to avoid duplication and facilitate access to existing resources.

For rural entrepreneurs, the core national, provincial and territorial support mechanisms have a heavy focus on science- and technology-based innovation, which may overlook the types of innovation that are more common in rural areas, which include process innovation, systems-entrepreneurial activity, public sector innovation, social innovation and private sector innovation. Depending on the type of rural area, some of these are more appropriate for accessible rural areas than for remote rural areas. For example, in remote rural areas, system-based entrepreneurs have a greater role because they help build the ecosystem in which innovation takes place. In accessible rural areas, access to a larger labour or supply pool may mean that user-based challenges are more about finding appropriate delivery models. In contrast to science- and technology-focused programmes, federal regional innovation programmes play a facilitating role for local community organisations.

Recommendations

Canada’s federal, provincial and territorial governments have an important role to play in encouraging rural innovation. The Canadian government’s departments and agencies that support rural areas and innovation should consider the need to: i) continue to support efforts made by Statistics Canada to increase the availability of statistics on rural areas and adopt a broader definition of innovation; ii) strengthen and develop the rural lens in innovation policy and programme design; iii) address governance challenges in delivering innovation services to rural areas; iv) reinforce measures to support innovation that better fit the demographics of rural communities; and v) encourage innovation to combat climate change.

Continue to support efforts made by Statistics Canada to increase the availability of statistics on rural areas and adopt a broader definition of innovation

Canada is an exemplary country where statistics are often freely available for many indicators relevant to rural areas based on national geographic definitions (in this report, proxied by census metropolitan area [CMA]/census agglomeration [CA] as urban and non-CMA/CA as rural). However, Statistics Canada could continue working in co‑ordination with the Government of Canada’s departments and agencies that have mandates and/or interest related to rural innovation to:

• Facilitate access to and publication of harmonised statistics in rural and urban areas by collecting and publishing data on:

  • Innovation as defined in the Oslo Manual, which includes information on significantly improved or new product or process innovation beyond those in science and technology activities.

  • Access to services critical to rural areas, including education, health and finance.

  • Green innovation, including data on green jobs, green product/process innovation, green technology patents, grant flows and additional financial support instruments such as tax credits, loans, equity and procurement targets.

Strengthen and develop the rural lens in innovation policy and programme design

Strengthen the rural lens in existing innovation initiatives

Broaden direct innovation programmes

Policy and programme design should specifically consider the characteristics and needs of rural remote and accessible regions in Canada. The Government of Canada’s departments and agencies that support rural areas as well as provincial and territorial governments should co‑ordinate to:

• Broaden innovation support mechanisms beyond science and technology and sectoral approaches, for example by:

  • Explicitly including support for rural “systems entrepreneurs”,10 social entrepreneurs, public sector innovation and local and community-driven initiatives as part of the array of existing rural innovation and entrepreneurship policies and programmes.

  • Supporting processes for developing rural innovation programmes that reflect rural and Indigenous values and opportunities, including, for example, prior consultation and consent with Indigenous communities.

Improve access to indirect innovation initiatives and business support services

As part of the continuous improvement of government support services for innovation and entrepreneurship, the Government of Canada’s departments and agencies that support rural areas should coordinate to simplify access to indirect support mechanisms for innovation by:

• Regularly consulting with smaller rural firms to understand how to better target existing programmes, including the commercialisation of new products, digitisation of processes and access to labour force training programmes.

• Matching new entrepreneurs with seasoned entrepreneurs for mentoring and counselling services. For example, an initiative called Alberta Innovates sought to match established rural entrepreneurs with little or no experience in the technology world with innovators and prospective start-ups or other individuals considering starting a firm.

• Providing regular information sessions and capacity-building training to help rural communities gain better access to digital and physical infrastructure. An example of this is support for communities in applying for access to better broadband services or bottom-up approaches to providing broadband services, including open-access municipal and community-led networks.

• Facilitating rural entrepreneurs’ understanding of and access to export promotion resources.

• Improve access to finance for rural entrepreneurs by:

  • Organising “pitch” roundtables for entrepreneurs with investors and financial institutions, as is currently being done by the CED.

  • Considering sharing funds for a programme that provides seed funding to a venture-type rural entity that has made equity investments in its region.

  • Encouraging financial partners to consider the different risk profiles of rural entrepreneurs, for example by reviewing interest rates and collateral practices for start-ups and potential entrepreneurs.

Developing new programmes that foster experimentation and continuous learning for new community-led or private sector-led ventures and public sector delivery

The Government of Canada’s departments and agencies that support rural areas, as well as provincial or territorial governments, should consider co-ordinating to incorporate more experimentation and bottom-up programme design aspects into regional development initiatives by, for example:

• Working with local, provincial and national government bodies to allow the creation of temporary regulatory sandboxes based on ideas for solving challenges in rural areas.

• Instilling the practice of regular challenge-based initiatives such as hackathons, think-a-thons and other forms of challenge-based competitions that seek to address rural challenges.

• Mainstreaming the availability of flexible funding for experimentation in the delivery of public services, for example through pilot programmes with new delivery models.

• Creating regular networks for continuous peer learning on best practices in the delivery of rural innovation support programmes with federal, provincial and territorial agencies. This should include systems-level entrepreneurs, social entrepreneurs and community stakeholders.

Address governance challenges in delivering innovation services in rural areas

The Government of Canada’s departments and agencies that support rural areas, as well as provincial/territorial governments, should address governance challenges related to density, scale and access to critical services in rural areas by:

• Strengthening co-ordination and collaboration between different levels of government (vertical) and government agencies (horizontal), including Indigenous, provincial, territorial and local governments, for example through:

  • Increased capacity for locally based, grassroots or bottom-up programmes in rural areas. Examples of such initiatives include programmes such as the European Union LEADER programme and the bottom-up approaches to setting priorities and implementing programmes based on engagements with local stakeholders in non-urban areas within the Swiss regional innovation system.

  • Regular co-ordination and consultation with government entities responsible for digital and physical infrastructure, education, health and social services, encouraging public-private partnerships to deliver services to rural and remote areas.

  • Promoting the use of one-stop shop tools such as the Business Benefits Finder and the Canada Business Application. This could include access to research and innovation partners, assistance with filing and registering patents, access to R&D voucher programmes, knowledge of R&D subsidies and other R&D incentives that vary by province.

• Considering a functional area approach for programme delivery. For example, consider whether northern areas are better suited to a joint development and innovation strategy or whether areas can be asked to self-identify with neighbouring development partners.

• Placing a rural lens on initiatives to support university-firm linkages by:

  • Encouraging stronger links between post-secondary educational institutions, firms and governments. This should include stronger support for rural “extension” programmes.

  • Working with post-secondary institutions to place a stronger focus on incentivising researchers to work with rural firms, “demand-driven” innovation, bringing innovative ideas to commercialisation and tailored upskilling and reskilling opportunities for rural areas. For instance, university researchers in Quebec are incentivised to work with rural firms.

  • Simplifying mechanisms that connect rural entrepreneurs with universities or research institutes, such as through one-stop shops or a specific innovation partnering tool (e.g. Interface in Scotland).

• Encouraging opportunities for networking and exchange between entrepreneurs and community members by:

  • Building a network of rural leaders that can create a network of rural entrepreneurs from different parts of Canada (and abroad), such as the Rural Leaders Network in Scotland.

  o Reinforcing the practice of supporting incubators, accelerators, Fab Labs or similar initiatives located in hubs near or within rural areas.

  • Encouraging partnerships between public, private and community stakeholders to repurpose buildings and create multiple-use facilities such as innovation hubs and community centres.

Reinforce measures to support innovation that better fit the demographics of rural communities

Strengthening support for different types of rural entrepreneurship

Policies and programmes developed by the Government of Canada’s departments and agencies that support rural areas, as well as provincial/territorial governments, should take into account rural demographics by:

• Co-ordinating across ministries to work on specific programmes to support diversity in innovation and entrepreneurship in rural areas. This can include:

  • Building public-private engagement in early entrepreneurship training for youth with local firms.

  • Conducting research to understand and address the challenges women and Indigenous entrepreneurs face in starting innovative companies and scaling up.

  • Incentivising upskilling for all workers, and especially older workers in rural areas.

  • Re-enforcing access to foreign talent through:

    • Retention programmes for migrants in rural areas that support the integration of newcomers to local communities, including measures such as language courses and settlement services that are more readily available in urban areas.

    • Support in access to immigration services for rural firms seeking to recruit foreign talent.

Strengthening support for Indigenous innovation and entrepreneurship

Indigenous innovation is based on a set of self-identified values. Indigenous communities, particularly those in remote northern territories, play a vital role in protecting the environment. In this regard, the Government of Canada’s departments and agencies that support rural areas and Indigenous economic development, as well as provincial/territorial governments, should continue to support innovation and entrepreneurship for Indigenous peoples and strengthen the framework conditions for Indigenous innovation and entrepreneurship to flourish by:

• Strengthening Indigenous economic opportunities through new rounds of engagement with modern treaties.

• Promoting collaboration between local governments and Indigenous Nations and communities. As described by the OECD (2020[8]), the role of RDAs in supporting Indigenous entrepreneurship can be enhanced by:

  • Ensuring that staff have region-specific cultural competency training.

  • Recruiting and peer mentoring (Indigenous leadership/mentoring networks).

  • Developing opportunities to connect local entrepreneurs with Indigenous entrepreneurs and communities in the regions.

  • Actively communicating with Indigenous communities and organisations and sharing leading practices of engagement and programme design across RDAs.

  • Developing programmes flexibly to meet the needs of Indigenous businesses and infrastructure.

  • Updating performance measures to reflect the success of Indigenous businesses and effective engagement with Indigenous communities.

• Encouraging the Government of Canada to amend Canada’s Copyright Act to protect Indigenous knowledge from unauthorised use and to ensure that Indigenous concepts of ownership are respected while enabling the original community to actively leverage that knowledge.

Encourage innovation to combat climate change

Supporting the creation of new green innovations

The Government of Canada, as well as provincial, territorial, Indigenous and local governments, should promote green innovation by:

• Ensuring green growth potential aligns with regional development strategies accordingly, for example by using the OECD Rural Agenda for Climate Action as an assessment tool.

• Encouraging clear government signals, like carbon pricing, at all levels of the Canadian government, especially when innovation requires large, long-term, high-risk investments or involves SMEs.

• Incorporating place-based considerations into federal, provincial and territorial support for green innovation. This can include:

  • Facilitating emissions reduction transitions that are consistent with local characteristics.

  • Ensuring that national strategies reflect provincial, territorial and regional challenges.

  • Creating communities of practice and peer learning opportunities based on levels of green innovation readiness and climatic conditions. This could include community roadmaps.

• Continuing investments in interdisciplinary, long-term research on climate change innovation.

• Increasing cluster initiatives to encourage greater public-private collaboration that can help create new and sustainable technologies and link rural firms to sustainable value systems. A good example is the Ocean Supercluster, which engages with rural places and builds on regional assets.

• Managing wealth from natural resources fit for purpose. Royalty regimes should be set up to ensure future prosperity for communities, aligned with the goals of the green transition, including:

  • Addressing the challenges of displaced workers resulting from the green transition.

  • Reinvesting in more sustainable practices (such as low-carbon mineral processing).

  • Managing windfall gains and inflation proofing.

• Improving collaboration between federal, provincial, territorial and Indigenous governments to support green innovation. This includes:

  • Focusing on the integration of strategies, policy tools and programmes, for example, by incentivising preferential treatment, matching federal and subnational programmes and funding, and bundling information on green innovation and clean business solutions.

  • Creating a dedicated communications campaign on green programmes targeting rural innovators to increase rural business participation.

• Continuing to champion the Indigenous Climate Leadership Agenda in the spirit of implementing the United Nations Declaration on the Rights of Indigenous Peoples and advancing reconciliation with Indigenous peoples. This includes:

  • Continuing to remove barriers to self-determined climate action and providing adequate funding to become successful leaders in green innovation.

  • Seeking stronger partnerships and collaboration with Indigenous peoples and empowering First Nations, Inuit and Métis to engage in green innovation.

  • Supporting Indigenous-led entrepreneurial efforts to:

    • Meaningfully incorporate sources of local and traditional knowledge for clean energy.

    • Improve access to capital and support programmes in the green economy, for example by encouraging First Nations Banks of Canada to provide green finance to Indigenous communities.

    • Navigate resources and services available in the area of green innovation.

Supporting diffusion and adoption of green innovation in rural communities

The Federation of Canadian Municipalities, in partnership with provinces and territories, could help empower local governments and communities by raising the profile of important levers such as:

• Integrating green skills into existing training programmes.

• Encouraging the use of public procurement to stimulate domestic demand for clean technologies and green innovation.

• Improving information sharing, peer learning and role modelling for green innovation.

References

[6] Acemoglu, D. et al. (2023), “Advanced technology adoption: Selection or causal effects?”, AEA Papers and Proceedings, Vol. 113, pp. 210-214, https://doi.org/10.1257/pandp.20231037.

[7] Mole, K. et al. (2022), Rural Family Business and Exporting Behaviour, https://doi.org/10.13140/RG.2.2.30788.91523.

[4] OECD (2023), OECD Science, Technology and Innovation Outlook 2023: Enabling Transitions in Times of Disruption, OECD Publishing, Paris, https://doi.org/10.1787/0b55736e-en.

[1] OECD (2022), Education at a Glance 2022: OECD Indicators, OECD Publishing, Paris, https://doi.org/10.1787/3197152b-en.

[2] OECD (2022), Education Policy Outlook 2022: Transforming Pathways for Lifelong Learners, OECD Publishing, Paris, https://doi.org/10.1787/c77c7a97-en.

[3] OECD (2022), International Migration Outlook 2022, OECD Publishing, Paris, https://doi.org/10.1787/30fe16d2-en.

[8] OECD (2020), Linking Indigenous Communities with Regional Development in Canada, OECD Rural Policy Reviews, OECD Publishing, Paris, https://doi.org/10.1787/fa0f60c6-en.

[5] OECD (forthcoming), Measuring Social Innovation Readiness in Rural Areas, OECD Publishing, Paris.

[10] Schlaile, M. et al. (2020), “Systems entrepreneurship: A conceptual substantiation of a novel entrepreneurial “species””, Sustainability Science, Vol. 16/3, pp. 781-794, https://doi.org/10.1007/s11625-020-00850-6.

[9] Statistics Canada (2021), 2021 Census of Canada, Government of Alberta, https://open.alberta.ca/dataset/487a7294-06ac-481e-80b7-5566692a6b11/resource/257af6d4-902c-4761-8fee-3971a4480678/download/tbf-2021-census-of-canada-indigenous-people.pdf.

Notes

← 1.  The report uses two types of geographical classifications. The first refers to “areas” using the Canadian classification based on the unit of census subdivisions (CSD) belonging to census metropolitan areas (CMAs) or census agglomerations (CA)s. This is used when the analysis is drawn from microdata or national resources using this classification. When using Canadian national statistics, urban areas are defined as a CMA with a population of at least 100 000 inhabitants and a CA with a population of at least 10 000 according to the previous census. Rural areas are defined as non-CMA/CA. The second set of geographical classifications is used for international comparability. It refers to small “regions” or administrative units at territorial level 3 (TL3), grouped into a typology defined by distance and access to functional urban areas. Both classifications are described in more detail in Chapter 2.

← 2.  Small regions refer to regions classified as Territorial Level 3, which refers to, in this case, Canadian census divisions.

← 3.  This is measured as the number of patent applications per 1 000 people.

← 4.  User-driven innovation refers to innovation initiated as a solution to an underlying challenge of entrepreneurs within the process of delivering a product or service. Demand-driven innovation refers to more general market demand from customers and clients that can include the creation of new services or products to satisfy customer demands.

← 5.  For example, Quebec has created a regional innovation support system for entrepreneurs that provides access to public education and training providers, innovation partners, institutional incentives at the university level to work with rural businesses. Another example from Ontario is the case of the Nuclear Innovation Institute in Bruce County (a nuclear site with a long-term procurement contract and a partnership with the city for developing the innovation ecosystem) lends nuclear reactors to small start-ups in different industries (such as robotics, pharmaceutical, etc.). A third example is the International Institute for Sustainable Development-Experimental Lakes Area (IISD-ELA) in Kenora, Ontario, a public-private partnership with international offices that creates a safe space for environmental testing.

← 6.  These data are based on rural definitions that use population centre estimates.

← 7.  This nomenclature is based on the Rural-Urban Continuum Codes from the United States Department of Agriculture.

← 8.  Levels of labour productivity in Canada in 2019 was 112 units equivalent to close to 112 000 GDP per worker in urban areas versus 116 units equivalent to close to 116 000 GDP per worker in rural areas. However, this may be partly due to the impact of mining activities.

← 9.  The benchmark category are firms with over 30 years of operation.

← 10.  A systems entrepreneur can be described as an entrepreneur or community actor that works on a systems (network) base, often engaging with others in a community or place that can include public, private and non-profit sectors to solve challenges that are engrained in the system. These challenges often rooted in relationships that involved social, economic and environmental factors, rather than one issue challenges that can be reduced to cause-effect relationships (Schlaile et al., 2020[10]).