A Comparison of Canada-U.S. Economic Growth in the Information Age, 1981-2000: The Importance of Investment in Information and Communication Technologies

Abstract

Using revised Statistics Canada estimates of output and inputs, this paper examines changes in the patterns of capital formation and the sources of economic growth for the Canadian business sector over the 1995-2000 period and makes comparisons with the 1981-1995 period. The changing composition of investment and the growth of capital services across broad asset classes is explored first. Then the growth in output is decomposed into components coming from growth in labour, capital and multifactor productivity. Finally, the extent to which information and communication technologies have made a key contribution to economic growth is investigated. Comparisons are made of the performance of the Canadian and U.S. business sectors in each of these areas. The results confirm some already familiar patterns, but also some novel features, particularly for the 1995-2000 period. The data show that increases in capital and labour continue to be important contributors to output growth. The increase in the growth rate of investment during the 1995-2000 period, which has occurred across many asset classes, has led to an increased growth contribution of capital services to output growth. A considerable increase in the number of hours worked has also contributed to economic growth; the substantial growth in labour inputs has muted the capital deepening effects of the rapid increase in capital services. The third primary source of growth in output, multifactor productivity growth, was 1.0% on average during the post-1995 period in Canada and 1.3% in the U.S. This increase was considerably higher than in the 1980s and early 1990s, especially in Canada. Although the resurgence in multifactor productivity in both countries does not surpass the pre-1973 performance, it was one of the most important stylized facts of the last five years of the twentieth century.