Patents, Innovation and Growth

New growth theories emphasize the role played by innovation in promoting economic growth. Since it is difficult to quantify the amount of innovation undertaken in an economy, there is little available empirical evidence assessing the contribution made by innovation to growth, in contrast to abundant evidence on the role of physical capital accumulation in the growth process. In this paper patent data are used to proxy the amount of innovation undertaken in an economy. The patent data are used to explore two questions. First, how important is innovation to economic growth in Australia, and second, are reductions in innovations sourced in Australia offset by increases in foreign sourced innovations in Australia?