Media Releases

Clusters in Ontario – Creating an Ecosystem for Prosperity

June 29, 2016

Toron­to, ON – A new work­ing paper from the Insti­tute for Com­pet­i­tive­ness and Pros­per­i­ty sug­gests that the province of Ontario could increase its pros­per­i­ty through the growth of clus­ters and makes rec­om­men­da­tions on how to improve the ecosys­tem that fos­ters suc­cess­ful clus­ters includ­ing the loos­en­ing of for­eign direct invest­ment restric­tions and reduc­ing gov­ern­ment involve­ment in ven­ture cap­i­tal mar­kets.

As of 2015, the pros­per­i­ty gap, mea­sured by Gross Domes­tic Prod­uct (GDP), between Ontario and its North Amer­i­can peers stood at $12,500 per capi­ta.  This pros­per­i­ty gap reflects lag­ging pro­duc­tiv­i­ty. It means that the aver­age work­er in Ontario pro­duces less out­put (such as goods or ser­vices) than his or her North Amer­i­can coun­ter­parts. If Ontario wants to close its pros­per­i­ty gap and become more com­pet­i­tive, it must address its great­est chal­lenge: increas­ing pro­duc­tiv­i­ty.

“Strength­en­ing clus­ters can lead to increased pro­duc­tiv­i­ty, eco­nom­ic growth, and pros­per­i­ty because clus­ters fos­ter inter­ac­tions that can ener­gize the region­al econ­o­my,” says Tiff Mack­lem, Chair of Ontario’s Pan­el on Eco­nom­ic Growth & Pros­per­i­ty, who is also the Dean of the Uni­ver­si­ty of Toronto’s Rot­man School of Man­age­ment.

The work­ing paper high­lights five areas where there has been suc­cess­ful clus­ters with a strong eco­nom­ic impact, includ­ing the finan­cial ser­vices in Toron­to and Ottawa and auto­mo­tive in Wind­sor, Guelph, and Kitch­en­er-Cam­bridge-Water­loo.

The Insti­tute rec­om­mends that the Ontario gov­ern­ment facil­i­tate the growth of strong clus­ters — rather than repli­cate them — through invest­ment in the foun­da­tion­al ele­ments that form a healthy clus­ter. There­fore, the fol­low­ing rec­om­men­da­tions not only help the strong clus­ters in the province grow, they also cre­ate a healthy ecosys­tem for all clus­ters to thrive.

  • Devel­op a com­pre­hen­sive clus­ter strat­e­gy that lever­ages improved region­al data col­lec­tion. Addi­tion­al region­al data sup­ports busi­ness and clus­ter deci­sion mak­ing.
  • Invest in inputs of pro­duc­tion. Human and phys­i­cal cap­i­tal are key ele­ments to all clus­ter envi­ron­ments. Skilled human cap­i­tal should con­tin­ue to be trained in order to pro­duce a tal­ent pool from which firms can draw. Advanced degree hold­ers dri­ve inno­va­tion and pro­duc­tiv­i­ty with­in their firm but also com­mand high­er wages, giv­ing them more sophis­ti­cat­ed con­sumer demands. Sophis­ti­cat­ed con­sumer demands pro­vides the impe­tus for high­er qual­i­ty prod­ucts that will be desir­able in glob­al mar­kets. Invest­ments in pro­duc­tiv­i­ty-enhanc­ing phys­i­cal cap­i­tal such as health care facil­i­ties, com­mu­ni­ca­tions engi­neer­ing, and marine infra­struc­ture will pro­vide the nec­es­sary frame­work for firms to oper­ate with­in.
  • Gov­ern­ment should recon­sid­er its heavy involve­ment in ven­ture cap­i­tal mar­kets. Busi­ness out­comes are improved when gov­ern­ment backed invest­ments are involved but the effect is declin­ing as the por­tion of pub­lic to pri­vate fund­ing increas­es. The Ontario gov­ern­ment may be over­com­mit­ting to the VC space and the busi­ness envi­ron­ment might ben­e­fit from a more opti­mal VC allo­ca­tion.
  • The entre­pre­neur­ial cul­ture of the province should be improved. Greater empha­sis on entre­pre­neurism could be imple­ment­ed in the edu­ca­tion and skills retrain­ing sys­tems.
  • Encour­age fur­ther inter­ac­tions and col­lab­o­ra­tion with­in clus­ters to spur devel­op­ment and inno­va­tion. Gov­ern­ment can bring clus­ter actors togeth­er through con­fer­ences, clus­ter asso­ci­a­tions, and indus­try lead­ers. By employ­ing these clus­ter vehi­cles, rel­e­vant actors are expect­ed to increase their inter­ac­tions and part­ner­ships with one anoth­er.
  • Expand trade for clus­ters by using the low cost Trade Com­mis­sion­er Ser­vice. These com­mis­sion­ers work direct­ly with com­pa­nies to break into inter­na­tion­al mar­kets.
  • Look at macro-regions such as the Great Lakes or the Kitch­en­er-Cam­bridge-Water­loo-Toron­to cor­ri­dor for super­clus­ter oppor­tu­ni­ties. Relat­ed clus­ters which span across these larg­er geo­graph­ic areas have the abil­i­ty to feed into one anoth­er and the spillover effects can ele­vate the region above oth­er strong clus­ters.
  • Loosen for­eign direct invest­ment restric­tion. If FDI restric­tions were loos­ened to the OECD aver­age it is sus­pect­ed that Ontario’s econ­o­my would grow by $4.5 bil­lion or $648 per work­er.

About the Insti­tute: The Insti­tute for Com­pet­i­tive­ness & Pros­per­i­ty is an inde­pen­dent, not-for-prof­it orga­ni­za­tion that deep­ens pub­lic under­stand­ing of macro and micro­eco­nom­ic fac­tors behind Ontario’s eco­nom­ic progress. The Insti­tute is sup­port­ed by the Ontario Min­istry of Eco­nom­ic Devel­op­ment and Growth.

Down­load the work­ing paper at

For more infor­ma­tion con­tact:

Jami­son Steeve, Exec­u­tive Direc­tor
Tel: 416–946-7585