The link between research and development (R&D) and productivity is a regular focus of innovation policy.
This insight highlights that a range of factors are important to improving Australia's innovation system and promoting productivity growth. These include access to skills and finance, competition, diffusion of ideas, in addition to R&D investment.
The role of expenditure on research and development in productivity growth
Productivity growth drives economic growth and gains in living standards. This occurs when the economy generates more output with the same input or the same output with less input (RBA, 2025). A widely accepted key driver of productivity is innovation (Productivity Commission, 2023) (OECD, 2018), and R&D is a contributor to innovation activity.
Assessments of the role of R&D in productivity growth often refer to simple, direct and strong relationships between R&D expenditure and measures of productivity. For example, the labour productivity index, which tracks how much output is produced per worker, has grown at a similar rate to gross expenditure on R&D (GERD) over the past 30 years. This indicates growth in both R&D expenditure across the whole economy and the total stock of physical capital used to produce R&D.
