Productivity performance of the Canadian pulp and paper industry

Abstract

This paper analyzes the productivity performance of the Canadian pulp and paper industry for the 1963–1984 period. The industry's productivity is first measured, then its sources are analyzed. Total factor productivity is used to measure industry productivity, and statistical estimation of neoclassical cost functions are used to determine sources of the productivity changes. In addition to decomposing the productivity changes into technical changes and changing the scale of the industry's output and capacity utilization, an attempt is also made to assess the impact of pollution control expenditures. The paper finds that although labour productivity grew at 2.5% per year (modest in comparison to other industries), the gross total factor productivity grew only by 1.2% per year. This is largely due to the fact that capital investment raises labour productivity but retards overall productivity. Of the 1.2% growth in total factor productivity, 0.88% was due to the increased scale of the industry output and 0.32% to technical change. Although there is no statistically conclusive evidence, the point estimate indicates that pollution control expenditures may have retarded productivity growth. However, this subject requires further investigation.