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Canada--US productivity gap: The role of competition intensity differential

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  • Malick Souare

Abstract

The relative lack of competitive pressure in product markets and lower investment in both fundamental and applied innovation are among the potential factors that have been put forward to explain Canada's weak productivity performance with respect to the US. Since competition is generally seen as the single leading catalyst for fundamental and applied innovation, this paper analyzes the role of product market competition in the Canada--US productivity level gap. We develop an empirical framework in which competition exerts both direct and indirect effects on productivity, with the indirect impact coming through fundamental and applied innovation. We find statistically significant evidence that the competition intensity differential (between Canada and the US) has contributed to the Canada--US productivity level gap directly, as well as indirectly through lower investment in both R&D activities and M&E (including ICT) investment. We also find statistically significant evidence that Canada's relatively poor performance in both productivity and M&E (including ICT) investment have acted as a self-reinforcing mechanism, which further causes detriment to the country's productivity.

Suggested Citation

  • Malick Souare, 2013. "Canada--US productivity gap: The role of competition intensity differential," International Review of Applied Economics, Taylor & Francis Journals, vol. 27(3), pages 404-428, May.
    • Handle: RePEc:taf:irapec:v:27:y:2013:i:3:p:404-428
    DOI: 10.1080/02692171.2012.736479
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    References listed on IDEAS

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    1. Andrea Bassanini & Ekkehard Ernst, 2002. "Labour Market Institutions, Product Market Regulation, and Innovation: Cross-Country Evidence," OECD Economics Department Working Papers 316, OECD Publishing.
    2. Robert Inklaar & Mary O'Mahony & Marcel Timmer, 2005. "ICT AND EUROPE's PRODUCTIVITY PERFORMANCE: INDUSTRY‐LEVEL GROWTH ACCOUNT COMPARISONS WITH THE UNITED STATES," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(4), pages 505-536, December.
    3. Stefano Scarpetta & Thierry Tressel, 2002. "Productivity and Convergence in a Panel of OECD Industries: Do Regulations and Institutions Matter?," OECD Economics Department Working Papers 342, OECD Publishing.
    4. Paul Conway & Donato de Rosa & Giuseppe Nicoletti & Faye Steiner, 2006. "Regulation, Competition and Productivity Convergence," OECD Economics Department Working Papers 509, OECD Publishing.
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    Cited by:

    1. Morgan, Horatio M., 2024. "An Integrative Institutional Framework on the Canada-U.S. Business Performance Gap," MPRA Paper 119739, University Library of Munich, Germany.
    2. Khalil Assala & Suela Bylykbashi & Gilles Roehrich, 2021. "How To Measure Competitive Intensity?," Post-Print hal-03381232, HAL.
    3. Kwieciński Dariusz, 2017. "Measures of Competitive Intensity – Analysis Based on Literature Review," Journal of Management and Business Administration. Central Europe, Sciendo, vol. 25(1), pages 53-77, March.

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