Innovation Migration: How Can Canada Reap the Benefits?

When the University of Toronto launched the Vector Institute for Artificial Intelligence in March 2017, flush with $100 million in government funding and $80 million in corporate support, it was seen as a bold push to establish Toronto as a global hotspot for AI research.

As much as it represents a technology play, however, the new institute is also focused on disrupting migration patterns around innovation. It aims to give high-skilled immigrants a compelling reason to choose Canada, and Canadian innovators a hard-boiled reason to stay put. Given its track record, Canada needs all the help it can get.

All countries look closely at these innovation migration patterns since high-skilled migrants have an outsized impact on new venture formation and the health of an economy. As Olena Ivus, E. Marie Shantz Fellow of Business Economics at Smith School of Business, points out, foreign-born individuals in the U.S. were responsible for starting 25 percent of venture-backed public companies between 1990 and 2005. Immigrant college graduates in the U.S. patent twice as frequently as their U.S.-born counterparts.

She cites a Canadian study that found skilled immigrants have a significant impact on innovation in their home provinces, based on international patents and the number of publications to scientific journals.

Mapping the Flow of Inventors

Ivus studies international trade law and regulation, foreign direct investment, intellectual property protection, and R&D activity. In a recent study on the mobility of Canadian inventors for the Centre for International Governance Innovation, she gathered data from international patent applications to discern the migratory patterns of innovators, researchers, scientists, engineers, and entrepreneurs. She divided the data into three groups: native inventors residing in Canada, native inventors residing abroad, and immigrant inventors residing in Canada.

Her key finding is that the rate of Canadian inventor-patent emigration has risen quickly over time — with the U.S. being the major destination — while the Canadian inventor-patent immigration rate has been stable and relatively low. This divergence began showing up in 1994.

Ivus says there are two plausible explanations for her findings. “First, it could be that Canadian firms are bringing in fewer patenting inventors than they are losing to foreign firms,” she says. “In other words, the group of Canadian native inventors residing abroad is simply larger, and this difference is driving the result. Second, it could be that Canadian native inventors residing abroad have higher innovation productivity on average (innovation productivity being measured by the number of patents associated with that inventor).”

Looking deeper into sectors of the economy, Ivus found that the disparity between Canadian native inventors residing abroad and immigrant inventors residing in Canada is most pronounced in the private sector. Since 2007, public research centres and universities have suffered a steady decline of native inventors residing in Canada.

“Trends like these are important not only for Canadian prosperity but also for the distribution of wealth globally”

Canada’s trend line differs from other OECD countries. Ivus shows that, similar to the Canadian experience, the inventor-patent emigration rate exceeded the inventor-patent immigration rate in OECD countries in all years after 1991. But, unlike in Canada, the inventor-patent immigration rate in these other countries has been rising since 1990.

“Trends like these are important not only for Canadian prosperity, but also for the distribution of wealth globally,” she says.

What can governments do to attract more innovators and retain their home-grown innovators? As a first measure, governments tend to pull on the immigration lever to attract bright minds from abroad. Many countries, including Canada, have instituted merit-based immigration policies. Canada also stands to gain from tighter immigration rules in the U.S. But, as Ivus’s study shows, focusing on immigration is not enough when Canadians are leaving the country to patent abroad.

“The inventor migration patterns . . . are alarming,” she says, “and suggest that immigration policy alone cannot be relied upon for retaining talent.”

Boosting Innovative Capacity

In her own research of OECD countries, Ivus found that the national capacity for innovation is a key determinant of inventor-patent emigration across OECD countries. Innovation capacity is largely driven by collaboration between firms and universities, human capital, and company spending on research and development. Countries with lower innovative capacity have a higher inventor-patent emigration rate.

This certainly describes Canada, which is known for a relatively low innovation capacity. Canada ranked 24th in “innovation and [business] sophistication factors” in the World Economic Forum’s Global Competitiveness report. According to the 2015-2016 Global Competitiveness Report, Canada ranks 13^th in global competitiveness, 26^th in R&D spending, and 23^rd in the capacity to innovate.

This isn’t news to Canadian business leaders and policy makers. Over the years, there has been much talk about the need for institutional reforms aimed at building and sustaining a climate supportive of innovation: streamlining government bureaucracy, easing tax rates, reducing the complexity of regulations, and improving access to financing.

Revisiting IP Rights Regime

Ivus suggests Canada also consider reforming the intellectual property rights regime. “Reducing the costs of intellectual property protection would encourage Canada’s innovation-intensive sectors and give firms in those sectors an edge in recruiting international talent,” she says.

She also argues for a multi-tier system of patent protection rather than the current one-size-fits-all approach. “Industries greatly differ,” she says. “Twenty years of patent protection may be required to recoup the cost of research and development in pharmaceutical and chemical industries but in telecommunications, for example, product cycles are relatively short and products often become outdated before patents on these products expire.”

Ivus cautions against viewing the emigration of top talent as strictly a loss. It has been shown that high-skilled expatriates transfer knowledge and innovations that they acquire abroad to colleagues in their home countries via professional, social, and ethnic networks. Emigrants also return and leverage the knowledge directly.

Indeed, Ivus’s own research in 2014 established a positive association between inventor emigration rates and the degree of international collaboration. She found that a one percentage point increase in the rate of inventor emigration is associated with a one percentage point increase in the share of inventors in foreign-owned international patent applications. Other research showed that cross-border collaboration on patent applications under the Patent Cooperation Treaty is high in countries with high inventor emigration rates.

For Canadian policy makers, Ivus says, the message is clear. “The goal of government should be to strengthen these diaspora networks,” she says, “to ensure benefits of knowledge diffusion are maximized.”

— Alan Morantz