IDEAS home Printed from https://ideas.repec.org/p/bca/bocawp/04-1.html
   My bibliography  Save this paper

The Effect of Adjustment Costs and Organizational Change on Productivity in Canada: Evidence from Aggregate Data

Author

Listed:
  • Danny Leung

Abstract

A basic neoclassical model of production is often used to assess the contribution of investment to output growth. In the model, investment raises the capital stock and output growth increases in proportion to the growth in capital. It has been argued, however, that computers, as a "general purpose technology," lead to process innovations and facilitate organizational coinvestments. Since there may be a learning period before firms realize the full potential of the new technology and begin to implement new processes, there may be a lag between the growth in investment and its benefits. In fact, during periods of rapid adoption of new technologies and equipment, firms may incur adjustment costs and struggle to maintain previous levels of output. Using aggregate annual Canadian data from 1961 to 2001, the author explores the magnitude of the effect that investment in new technology, in the form of new computer hardware, can have on output growth. He finds that such investment has a positive effect on output growth that cannot be explained by growth in inputs. This effect, however, is not instantaneous and is strongest only three years after the initial investment. Furthermore, the author's findings suggest that the effect of computer hardware investment has grown over time.

Suggested Citation

  • Danny Leung, 2004. "The Effect of Adjustment Costs and Organizational Change on Productivity in Canada: Evidence from Aggregate Data," Staff Working Papers 04-1, Bank of Canada.
  • Handle: RePEc:bca:bocawp:04-1
    as

    Download full text from publisher

    File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/02/wp04-1.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Susanto Basu & John G. Fernald & Nicholas Oulton & Sylaja Srinivasan, 2003. "The Case of the Missing Productivity Growth: Or, Does Information technology explain why productivity accelerated in the United States but not the United Kingdom?," Harvard Institute of Economic Research Working Papers 2021, Harvard - Institute of Economic Research.
    2. Michael T. Kiley, 1999. "Computers and growth with costs of adjustment: will the future look like the past?," Finance and Economics Discussion Series 1999-36, Board of Governors of the Federal Reserve System (U.S.).
    3. Shapiro, Matthew D, 1986. "Capital Utilization and Capital Accumulation: Theory and Evidence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(3), pages 211-234, July.
    4. Baldwin, John R. & Harchaoui, Tarek, 2002. "Productivity Growth in Canada," Productivity Growth in Canada, Statistics Canada, Economic Analysis Division, number stcb6e, June.
    5. Hashmat Khan & Marjorie Santos, 2002. "Contribution of ICT Use to Output and Labour-Productivity Growth in Canada," Staff Working Papers 02-7, Bank of Canada.
    6. Elena Arnal & Wooseok Ok & Raymond Torres, 2001. "Knowledge, Work Organisation and Economic Growth," OECD Labour Market and Social Policy Occasional Papers 50, OECD Publishing.
    7. Edward N. Wolff, 2002. "Productivity, computerization, and skill change," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 63-87.
    8. Lichtenberg, Frank R, 1988. "Estimation of the Internal Adjustment Costs Model Using Longitudinal Establishment Data," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 421-430, August.
    9. Erik Brynjolfsson & Lorin M. Hitt, 2003. "Computing Productivity: Firm-Level Evidence," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 793-808, November.
    10. Erik Brynjolfsson & Lorin M. Hitt, 2000. "Beyond Computation: Information Technology, Organizational Transformation and Business Performance," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 23-48, Fall.
    11. Oliner, Stephen D. & Sichel, Daniel E., 2003. "Information technology and productivity: where are we now and where are we going?," Journal of Policy Modeling, Elsevier, vol. 25(5), pages 477-503, July.
    12. James Bessen, 2002. "Technology Adoption Costs and Productivity Growth: The Transition to Information Technology," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 443-469, April.
    13. Timothy F. Bresnahan & Erik Brynjolfsson & Lorin M. Hitt, 2002. "Information Technology, Workplace Organization, and the Demand for Skilled Labor: Firm-Level Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 339-376.
    14. Stiroh, Kevin J, 2002. "Are ICT Spillovers Driving the New Economy?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(1), pages 33-57, March.
    15. Alain Paquet & Benoit Robidoux, 1997. "Issues on the Measurement of the Solow Residual and the Testing of its Exogeneity: a Tale of Two Countries," Cahiers de recherche CREFE / CREFE Working Papers 51, CREFE, Université du Québec à Montréal.
    16. Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75, pages 321-321.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Danny Leung & Yi Zheng, 2012. "What affects MFP in the long-run? Evidence from Canadian industries," Applied Economics, Taylor & Francis Journals, vol. 44(6), pages 727-738, February.
    2. Yannis Hatzikian, 2015. "Exploring the Link between Innovation and Firm Performance," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 6(4), pages 749-768, December.
    3. Someshwar Rao & Andrew Sharpe & Jeremy Smith, 2005. "An Analysis of the Labour Productivity Growth Slowdown in Canada since 2000," International Productivity Monitor, Centre for the Study of Living Standards, vol. 10, pages 3-23, Spring.
    4. Ayhan Kose & Roberto Cardarelli, 2004. "Economic Integration, Business Cycle, and Productivity in North America," IMF Working Papers 04/138, International Monetary Fund.
    5. repec:spr:jknowl:v:8:y:2017:i:1:d:10.1007_s13132-015-0266-3 is not listed on IDEAS
    6. Jason Allen & Walter Engert & Ying Liu, 2006. "Are Canadian Banks Efficient? A Canada--U.S. Comparison," Staff Working Papers 06-33, Bank of Canada.
    7. Dirk Pilat, 2005. "Canada's Productivity Performance in International Perspective," International Productivity Monitor, Centre for the Study of Living Standards, vol. 10, pages 24-44, Spring.
    8. Petr Hanel, 2007. "Productivity and innovation: an overview of the issues," Cahiers de recherche 07-22, Departement d'Economique de l'École de gestion à l'Université de Sherbrooke.
    9. Richard Dion & Robert Fay, 2008. "Understanding Productivity: A Review of Recent Technical Research," Discussion Papers 08-3, Bank of Canada.
    10. Jean-Francois Arsenault & Andrew Sharpe, 2008. "An Analysis of the Causes of Weak Labour Productivity Growth in Canada since 2000," International Productivity Monitor, Centre for the Study of Living Standards, vol. 16, pages 14-39, Spring.

    More about this item

    Keywords

    Productivity;

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O49 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Other

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bca:bocawp:04-1. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://www.bank-banque-canada.ca/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.