New growth theories emphasize the role played by innovation in promoting ec
onomic growth. Since it is difficult to quantify the amount of innovation u
ndertaken. in an economy, there is little available empirical evidence asse
ssing the contribution made by innovation to growth, in contrast to abundan
t evidence on the role of physical capital accumulation in the growth proce
ss. In this paper patent data ape used to proxy the amount of innovation un
dertaken in an economy. The patent data are used to explore two questions.
First, how important is innovation to economic growth in Australia, and sec
ond, are reductions in innovations sourced in Australia offset by increases
in foreign sourced innovations in Australia?.