It is extremely difficult to measur

It is extremely difficult to measure the level of innovation in a market/industry. The
level of research and development is often used as a proxy for innovation since there is a
strong relationship between R&D spending and innovation, but it must be remembered
that R&D is the input into the process, while innovation is the output. Innovation is seen
as a conduct factor for firms since it depends upon the amount of R&D firms choose to
carry out. The level of R&D expenditure and innovation will depend upon the nature of
the product and will vary greatly between industries. It will also depend upon the stage of
the product in its life cycle. Invention and innovation are high-risk activities which are
encouraged by the government through the patent system which reduces the risk involved
in R&D. Table 8.2 shows the breakdown of R&D spending in the UK for 2002 by broad
sector. The total of £12,785 million represents around 1.2 per cent of GDP.