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Canada's Recent Productivity Record and Capital Accumulation

Author

Listed:
  • Someshwar Rao

    ()

  • Jianmin Tang
  • Weimin Wang

Abstract

In this article, Someshwar Rao, Jiamin Tang and Weimin Wang of Industry Canada examine the impact of capital accumulation on Canada's recent productivity record. A key finding is that the widening of the Canada-U.S. labour productivity gap in both the business sector and in manufacturing in the second half of the 1990s was largely due to the widening of the capital intensity gap between the two countries. Indeed, the authors find that in the business sector multifactor productivity growth in the two countries was virtually identical at around 2 per cent per year in the 1995-2000 period. This situation is explained by the marked slowdown in the pace of capital intensity growth in Canada after 1995. This development reflected the increased cost of capital relative to labour in Canada, in turn the result of higher prices for investment goods because of the depreciation of the Canadian dollar and low wage increases due to high unemployment. With the recent appreciation of the Canadian dollar and the expected decline in unemployment, the authors project in the medium-term a narrowing of Canada's capital intensity gap with the United States and hence a reduction in the labour productivity gap.

Suggested Citation

  • Someshwar Rao & Jianmin Tang & Weimin Wang, 2003. "Canada's Recent Productivity Record and Capital Accumulation," International Productivity Monitor, Centre for the Study of Living Standards, vol. 7, pages 24-38, Fall.
  • Handle: RePEc:sls:ipmsls:v:7:y:2003:2
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    File URL: http://www.csls.ca/ipm/7/raoetal-e.pdf
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    File URL: http://www.csls.ca/ipm/7/raoetal-f.pdf
    File Function: version en francais, pp:29-45
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    References listed on IDEAS

    as
    1. Jeffrey I. Bernstein & Richard G. Harris & Andrew Sharpe, 2002. "The Widening Canada-US Productivity Gap in Manufaturing," International Productivity Monitor, Centre for the Study of Living Standards, vol. 5, pages 3-22, Fall.
    2. Someshwar Rao & Jianmin Tang & Weimin Wang, 2002. "The Importance of Skills for Innovation and Productivity," International Productivity Monitor, Centre for the Study of Living Standards, vol. 4, pages 15-26, Spring.
    3. Andrew Sharpe, 2003. "Why are Americans More Productive than Canadians?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 6, pages 19-37, Spring.
    4. Someshwar Rao & Ashfaq Ahmad & William Horsman & Phaedra Kaptein-Russell, 2001. "The Importance of Innovation for Productivity," International Productivity Monitor, Centre for the Study of Living Standards, vol. 2, pages 11-18, Spring.
    5. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-362, June.
    6. Jack Mintz, 1995. "Corporation tax: a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 16(4), pages 23-68, November.
    7. Vijay Jog & Jianmin Tang, 2001. "Tax Reforms, Debt Shifting and Tax Revenues: Multinational Corporations in Canada," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(1), pages 5-25, January.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Landon, Stuart & Smith, Constance E., 2009. "Investment and the exchange rate: Short run and long run aggregate and sector-level estimates," Journal of International Money and Finance, Elsevier, vol. 28(5), pages 813-835, September.
    2. Julia Hall & Grant Scobie, 2005. "Capital Shallowness: A Problem for New Zealand?," Treasury Working Paper Series 05/05, New Zealand Treasury.
    3. Grady, Patrick, 2010. "Immigration and the Growing Canada-U.S. Productivity Gap," MPRA Paper 27454, University Library of Munich, Germany.
    4. Grady, Patrick, 2008. "Is Canadian Immigration too high? A Labour Market and Productivity Perspective," MPRA Paper 25221, University Library of Munich, Germany.
    5. Someshwar Rao & Andrew Sharpe & Jianmin Tang, 2004. "Productivity Growth in Service Industries: A Canadian Success Story," CSLS Research Reports 2004-01, Centre for the Study of Living Standards.
    6. Danny Leung & Terence Yuen, 2010. "Do exchange rates affect the capital-labour ratio? Panel evidence from Canadian manufacturing industries," Applied Economics, Taylor & Francis Journals, vol. 42(20), pages 2519-2535.
    7. Paul Schreyer, 2007. "International Comparisons of Levels of Capital Input and Multi-Factor Productivity," German Economic Review, Verein für Socialpolitik, vol. 8, pages 237-254, May.
    8. Andrew Sharpe, 2007. "Three Policies to Improve Productivity Growth in Canada," CSLS Research Reports 2007-05, Centre for the Study of Living Standards.

    More about this item

    Keywords

    Capital Accumulation; Canada; United States; Labour Productivity; Gap; Capital Intensity; Translog; Growth Accounting;

    JEL classification:

    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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