KNOWLEDGE AND INNOVATION

Improvements in a nation's productivity can be the result of a wide variety of large and small scale influences. The OECD Innovation Strategy noted that "The world today faces significant economic, environmental and social challenges. While no single policy instrument holds all the answers, innovation is the key ingredient of any effort to improve people's quality of life". In terms of a country's economic wellbeing, the OECD Innovation Strategy added that "Innovation, which involves the introduction of a new or significantly improved product, process or method, will increasingly be needed to drive growth and employment and improve living standards".

It is widely accepted that business innovation activities and resulting performance are key drivers of technical progress (i.e. productivity). Productivity gains can be derived from various practices that promote knowledge and innovation. Increased knowledge and innovation can drive the development of new or improved products and lead to the streamlining of business processes and practices.

While there is no single indicator that can measure all aspects of knowledge and innovation in Australia, several indicators, for which data is available, are provided. These include the proportion of businesses that are innovating, Australia's investments in knowledge (namely expenditure in research and development), business use of the Internet, and improvements in the quality of labour.