Executive summary
Traditionally, resident patent filings are interpreted as a proxy for domestic innovation, while non-resident filings are viewed as an indicator of market attractiveness, with the 2 series analysed in isolation. However, patent administrative data capture not only Australia's innovative activity but also inward technology transfer, including foreign intellectual property acquired through licensing and technology embodied in imported capital goods and other intellectual property products.
In this context, successful technology transfer can rely on and stimulate complementary domestic inventive activity – for example, through knowledge spillovers, capability building, and industrial upgrading. As such, the conventional framework is less well suited to small open economies, where domestic innovation is closely intertwined with foreign-generated knowledge.
The estimates reported in this study show that neither resident nor non-resident patent filings, considered separately, exhibit a sustained relationship with Australian investment in intellectual property products, as reported in Australia's national accounts. Instead, what matters is the gap between them.
Changes in resident patent filings help restore balance between domestic and foreign knowledge creation. This adjustment makes the resident-to-non-resident filing ratio a more informative indicator than either series considered separately.
Key findings
- Australian industries invested $77.8 billion in intellectual property products (IPP) in 2024–25, accounting for 11.5% of total investment. IPP's share of investment has grown from 2.6% in 1959–60 to around 11% today, while its composition has shifted from being dominated by research and development (R&D) investment and mineral exploration to predominantly software (52%) and R&D (38%) investments.
- IPP assets depreciate rapidly, at around 19% of net capital stock annually, compared with 5.4% for total capital stock. As a result, strong investment flows generate only a relatively small and gradually growing stock of intangible capital. Since 2013–14, real R&D investment has grown by 1.4% per year, while real software investment has increased by 10.8% per year.
- Australian residents accounted for 9.3% of patents filed in Australia in 2025, while applicants from the United States accounted for 40.8%. Between 1990–91 and 2024–25, non-resident patent filings increased 2.2-fold and resident filings 1.5-fold, compared with a nearly 7-fold increase in real IPP investment.
- Neither resident nor non-resident patent filings alone have a stable long-run relationship with IPP investment. Instead, the ratio of resident to non-resident filings is significant, with an estimated elasticity of 0.22 (95% CI: 0.13–0.31). The ratio was not imposed but emerged from the estimation.
- Resident filings account for all adjustment in this triangular relationship. Neither non-resident filings nor IPP investment show evidence of adjustment, and the restriction that they do not adjust cannot be rejected. However, short-run feedback runs in both directions, so this finding relates to adjustment dynamics rather than causation.
- The triangular relationship holds on R&D investment and not on software. It survives an explicit 2014 break dummy, error-correction estimation and a pre-2013 subsample, but formal cointegration tests weaken under small-sample corrections and when a global control is added.
- For policy, the pattern points to the creation side of the Australian innovation system: the incentives, skills, research capability and absorptive capacity that support resident patenting and R&D investment, alongside continued attention to diffusion and adoption from overseas.