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We study the post -2000 productivity slowdown in Canada. Due to data limitation, the causes of the slowdown have not been studied systematically. Unlike most previous studies that focus directly on the actual productivity, in this paper we decompose the actual productivity into two components: technological frontier and technical efficiency. Technological frontier measures the maximum level of productivity potential related to firm-specific technology development while technical efficiency reflects the ability/technique in achieving the potential. Using a constructed rich micro data, we find that Canada's productivity slowdown cannot be largely explained by factors such as R&D, ICTs and intangibles that are considered to be important to productivity. Instead, we show that the productivity slowdown in Canada was mainly due to the retreat of aggregate technological frontier, driven by large and high-productivity firms.

The superior productivity performance of outward foreign direct investment (FDI) firms is attributable to both ex ante advantages gained within the home market and ex post learning, which emanates from MNE experiences in host markets. Learning is modeled as a function of firm-level R&D efforts, absorptive capacity, and host-country characteristics. Using a firm-level panel database on all firms in Canada, a large-scale econometric analysis is undertaken to show that the host-country environment is central to MNE learning. We also quantify results in the extant literature on the share of the superior productivity exhibited by FDI firms into that which emanates from the home market, and that which is linked to ex post learning, finding 79% attributable to the selection effect, and 21% to the learning effect. The implications of these results are that, since productivity is endogenous to FDI, firms which are below a threshold level required to be successful internationally ex ante can nevertheless succeed if learning can move these MNEs above the required threshold for success ex post. As such, this research provides insights into strategies and host-country environments which lead to ex post productivity improvements for firms undertaking outward FDI, and hence informs the FDI decision at the firm level.

There have been strong evidence showing a declining trend of firm dynamism in many other OECD countries over the last three decades. However, so far there has no compelling evidence that points to ...

The highly contagious COVID-19 virus spread across the world in a matter of months, beginning in the second half of 2019 and being declared a global pandemic by March, 2020. To limit its continued ...

Many commentators and researchers have attributed the manufacturing success in China to its ownership reforms. Using a micro database from the Chinese National Bureau of Statistics, this paper documents and quantifies this development. With systematic and robust analyses, it shows that the development of private ownership indeed played an essential role in improving firm performance and the allocation and utilization of production resources in the Chinese manufacturing sector. In addition, the paper estimates the contributions of firms under different ownership to manufacturing growth, showing that the development of private ownership was the driving force of manufacturing growth in China. The strong credible evidence has important policy implications for further maintaining sustainable development in China.

The present paper studies the sources of economic growth and the nature of structural change in the Chinese economy from 1987 to 2008. Using a methodology that evaluates the contribution of an industry to economic growth, the present paper shows that the post-2000 subperiod marked an increased reliance on the services sector as a source of growth in the Chinese economy. Much of the acceleration in real GDP or aggregate labor productivity growth in China in the post-2000 subperiod compared to the pre-2000 period can be traced to an increased contribution from service-producing and high-technology exporting manufacturing industries. The evidence indicates that the Chinese economy has been rebalancing toward domestic consumption and shifting its export sector toward high-technology manufacturing industries.

Understanding the nature of structural change and the sources of economic growth of an economy, especially the relative importance of different industries, is essential for policy-making. This paper estimates industry contribution to economic growth in both Canada and the United States. It argues that industry contribution should be evaluated on the basis of the performance of an industry in terms of creating economic value relative to other industries. In particular, it calls for the quantity and the price effects, which is consistent with real GDP in the chained-Fisher index that values the industry more when its price rises and less when its price declines. This is an important departure from the traditional methodologies that consider only quantity effect. This paper shows that the contribution from demand-driven industries is significantly more than the finding based on traditional thinking.

This paper shows that the higher small-plant employment share in Canada compared with the United States mattered for the Canada-U.S. manufacturing labour-productivity gap, but it did not contribute to the widening of the gap between 2002 and 2007. In addition, it shows that while the weaker productivity performance of small plants in Canada compared with the United States accounted for much of the gap in a particular year, the deterioration in the productivity performance of large plants in Canada was responsible for most of the widening gap over this period. Resume Est-ce que les petits ou les grands producteurs conforment l’ecart de productivite du travail entre le Canada et les Etats-Unis? Resultats recents pour le secteur manufacturier. Ce texte montre que la plus grande portion de l'emploi dans les petits etablissements au Canada par rapport aux Etats-Unis est importante dans l'explication de la difference de niveau de productivite du travail entre le Canada et les Etats-Unis, mais que ce facteur n'a pas contribue a l'accroissement de l'ecart entre 2002 et 2007. De plus on montre qu'alors que la productivite plus faible des petits etablissements au Canada par rapport aux Etats-Unis explique le gros de l'ecart pour une annee particuliere, c'est la deterioration de la productivite des grands etablissements au Canada qui explique le gros de la croissance de l'ecart au cours de cette periode.

Labour productivity growth in the Canadian electronic and electrical product manufacturing industry declined, from 21% per year in the period 1997–2000, to negative 4% per year in the period 2000–2006. This paper investigates if the restructuring and the reallocation of market share and resource within the industry following the bursting of the tech bubble in 2000 contributed to the slowdown in productivity growth. The reallocation may be a result of change in the composition of constituent sub-industries (industry mix), the entry of new firms and the exit of existing firms, and/or the growth and decline in continuing firms. This paper shows that the slowdown in productivity growth in the Canadian electronic and electrical product industry was mainly due to weaker productivity performance of the sub-industries, which can largely be traced to the decline in labour productivity growth of continuing plants. It finds that the reallocation had some impact, but it was not the primary factor behind the d...

Offshoring becomes an increasingly important strategy for Canadian businesses to compete in domestic and international markets. It is facilitated by advances in transportation and communications te...

Labour productivity growth in the Canadian business sector has averaged less than 1.0 percent since 2000, more than 40 percent below the average growth rate during 1981–2000. On the other hand, labour productivity growth accelerated in the U.S. in the post-2000 period compared to the average growth prior to 2000. Available research shows that the divergence in labour productivity growth was entirely due to the gap in multifactor productivity (MFP) growth. This paper looks at the possible role of information and communications technologies (ICTs) in the recent productivity growth divergence between the two countries. Using data on 33 industries over the period 1987–2000, it examines empirically the impact of ICTs on MFP growth in Canada and the U.S., taking into account ICT-related investments in intangibles and the issue of endogeneity of the explanatory variables. The regression results suggest that ICT capital is not a significant determinant of MFP growth in Canada and the U.S., implying that i...

Offshoring has become increasingly important for businesses, especially manufacturing firms, to compete in domestic and international markets. This paper empirically studies the association between offshoring, productivity, and plant characteristics by focusing on the geographical dimension of plants' business activities. Using data from Statistics Canada's Survey of Innovation 2005 and Annual Surveys of Manufacturers, we show that material offshoring is strongly associated with firms' outward-oriented business activities (including foreign operation, investing in foreign M&E, and exporting), even after controlling for geographic advantages and industry- and plant-specific effects. For R&D offshoring, we find that it is mainly associated with investment in foreign M&E. In addition, this paper shows that material offshoring is positively associated with productivity and that the association is significantly larger for material offshoring to Asia Pacific countries than for material offshoring to the U.S. and other locations.

This paper analyzes the reasons for the Canada-US labour productivity gap, which is mainly explained by the multifactor productivity (MFP) gap. Based on panel data for 41 industries, the regression results show that differences in the machinery and equipment (M&E) capital-labour ratio, trade openness, and capacity utilization explain differences in the Canada-US MFP gap across industries. The M&E capital intensity gap is the dominant source of the MFP gap. Lower wages, R&D intensity, and skills levels, as well as higher investment goods prices in Canada are the major determinants of the M&E capital intensity gap.

Innovation is a complex process and has multiple dimensions. In assessing the linkage between innovation and productivity, most of studies, due to data limitations, use only one single indicator to measure innovation. This paper argues that this practice may systematically bias against certain groups of companies or industries since they often engage in different innovation activities to achieve their different business objectives. To better measure innovation, this paper develops an innovation index, a linear combination of multiple innovation indicators based on a latent variable model. The proposition is supported by evidence from a rich micro dataset for Canadian manufacturing firms.

This paper considers the microfoundations of agglomeration economies, in particular agglomeration economies that arise from uncertainty. The paper begins with a simple model that captures several sorts of uncertainty-driven agglomeration. These include competitive instability, the need for skilled workers, and technological innovativeness. The model's key result is that firms facing more uncertainty will agglomerate with each other in large cities or industry clusters. Firms facing less uncertainty will be found in small cities or outside of clusters. The paper tests these ideas by employing survey data to see if establishments in large cities or industry clusters describe themselves as facing these sorts of uncertainty. The empirical results are consistent with the existence of all three of the agglomerative forces mentioned above. However, the forces operate in different ways. Competitive instability and technological innovativeness are associated with city size, while skill-orientation is associated with industry clustering.

This paper attempts to shed light on the complex relationship between innovation and competition. Traditional measures of product market competition using industry statistics are often challenged and found wanting. Using the Statistics Canada 1999 Survey of Innovation, this paper develops new measures of competition by arguing that firms’ perceptions about their competitive environment are important for innovation and are better measures of firm-specific competition. It shows that the relationship can be positive or negative, depending on specific competition perception and specific innovation activity. In addition, it shows that firms tend to bundle process innovation with product innovation, implying that the economic value of process innovation is likely embodied in product innovation.

This paper studies the direct impact of labour force ageing on productivity growth in 10 Canadian provinces over the period 1981–2001, with an outlook to 2046. It shows that older workers are, on average, less productive than younger workers and that labour force ageing has a modest negative direct impact on productivity growth in Canada. The impact has increased since the middle of the 1990s, will peak in 2001–11, and tail off afterwards. During the peak period, productivity growth in Canada will be reduced by 0.13 to 0.23 percentage points per year, with Newfoundland being hit the hardest. JEL classification: J21, O47

This paper examines the trend in the importance of small producers in the Canadian and U.S. manufacturing sectors from the early 1970s to the late 1990s in order to investigate whether there was a common North American trend in changes in plant size. It finds that small plants in both countries increased their share of employment up to the 1990s, but their share remained stable in the 1990s. Small plants increased their share of output up to the 1990s, but then saw their share of output decline. Over the entire time period, their share of output increased less than their share of employment and, therefore their relative labour productivity has fallen. The similarity in the trends in the two countries suggests that causes of this phenomenon should be sought in similarities such as the technological environment rather than in country-specific factors like unionization or trade intensities.

Empirical studies commonly use research and development (R&D) to measure innovation and often find, especially in Canada, no strong link between productivity and innovation. In this article, we model innovation as an unobservable latent variable that underlies four indicators: R&D, patents, technology adoption, and skills. We find that these indicators are reasonably good measures of innovation for aggregate manufacturing. However, except for skills, the reliability of the indicators for innovation differs among individual industries. Our innovation indexes, based on the latent variable model, show that most manufacturing industries became more innovative over the 1980–1997 period. The pace of innovation in the electrical and electronic products industry accelerated during the 1990s. In addition, we show that the new measure of innovation has a positive and statistically significant impact on productivity. It takes from 1 to 3 years, depending on the industry, for innovation to generate an impact on produ...

In this paper we propose a decomposition technique to examine the sources of industrial contribution to aggregate labour productivity growth. We show that in terms of pure labour productivity growth, the manufacturing and service sectors contributed equally to the aggregate Canada-U.S. labour productivity growth gap during the 1987–98 period. But, in terms of total industrial contributions, which also take into account the contributions from a change in relative size, the service sector was the largest contributor. We also find that high labour productivity growth industries did not attract resources from stagnant industries – a phenomenon consistent with Baumol's cost disease of stagnant industries. JEL Classification: O47, C43

An analysis of Canadiancorporate income tax revenues during the 1984–94 periodshows a relative shifting of tax revenue shares between Canadianand foreign-controlled corporations, and a substantial changein the debt levels of foreign-controlled corporations, as wellas Canadian-based multinationals. We claim that these changesmay have been associated with the tax reforms undertaken by theUnited States and Canada in the mid-1980s resulting in the relativechange in the tax rates between the two countries. We also hypothesizethat if this difference persists and in Canadian-controlled corporationscontinue to aggressively expand abroad, the Canadian corporatetax base could experience further pressure.

The implementation of the Free Trade Agreement in 1989 between Canada and the United States, followed by the North America Free Trade Agreement in 1994, has intensified competition between Canadian and U.S. firms as well as provided more opportunities for them. This study presents a snapshot of the competitive position of Canadian industries relative to U.S. industries in 1995. In addition, the study analyzes how the Canadian private business sector's competitiveness has evolved relative to its U.S. counterpart between 1961 and 1995. In order to compare international competitiveness between the two countries, we first construct purchasing-power parities for output and inputs by industry using bilateral CanadaU.S. commodity price data (Dale W. Jorgenson and Masahiro Kuroda, 1995; Lee and Tang, 1999).1 We estimate purchasing-power parities for capital input based on the relative prices of investment goods, taking into account the flow of capital services per unit of capital stock.2 We use hourly labor compensation rates disaggregated by 112 worker types in the two countries to estimate purchasing-power parities for labor input.3 These purchasing-power parities take into account differences between Canada and the United States in the composition of output and inputs for each industry considered, thereby allowing comparisons of both prices and quantities of output and inputs in Canada with those in the United States.

Most OECD economies, including that of Canada, experienced a slowdown in economic growth from the 1961–1973 period to the 1973– 1988 period, and to the 1988–1995 period. Consequently, progress in the standard of living, as measured by GDP per capita, also slowed down in most OECD countries over the three subperiods. This paper analyses the sources of output growth in 122 industries and in the private business sector to gain an additional perspective on the slowdown of the Canadian economy. We adopt the constant-quality indexes of capital and labor inputs introduced by Dale W. Jorgenson and Zvi Griliches (1967) and later used extensively in Jorgenson et al. (1987), Jorgenson (1995a, b), and Jorgenson and Eric Yip (2000) to identify the sources of growth. These measures allow us to take into account the changing composition of the labor force and the capital stock. At the industry level, we adjust for capital quality by aggregating the capital stock across five asset types by means of the rental prices of capital rather than the asset prices of capital. The use of rental prices allows us to incorporate differences in depreciation rates and tax treatment across different asset types for each industry. At the same time, we combine hours worked by each type of worker using the share of labor compensation to reflect labor quality. At the aggregate level, we apply the same framework by aggregating the capital stock across different asset types and hours worked across different types of workers. A number of studies have compared Canada’s economic growth performance with that of its competitors using this framework (Chrysostom Dougherty, 1991; Dougherty and Jorgenson, 1997; Jorgenson and Yip, 2000). However, this is the first attempt at using this framework to assess Canada’s economic performance at the industry level.

We introduce a side-payment scheme, maximum victim benefit, that promotes ‘stable’ international environmental agreements. In developing this scheme, we incorporate the equity position that victims of pollution should benefit from pollution control. The result is a scheme which picks a unique element in the core; it maximizes the benefits to the victims of pollution and ensures that polluters are willing to join the scheme.

Canada’s deterioration in labor productivity performance in the post-2000 period, especially relative to the United States, has been a major concern for policy makers. From an industrial structure perspective, this article shows that the faster loss of the manufacturing base in Canada than in the United States and the deterioration in the productivity performance of Canadian large manufacturing firms relative to their US counterparts were the main factors associated with the widening Canada–US labor productivity gap in the post-2000 period.

This paper examines the trend in the importance of small producers in the Canadian and U.S. manufacturing sectors from the early 1970s to the late 1990s. It finds similar trends in both countries. Small plants increased their share of employment up to the 1990s but their share remained stable in the 1990s. Small plants increased their share of output up to the 1990s but then saw their share of output decline. Over the entire time period, their share of output increased less than their share of employment and, therefore, their relative labour productivity has fallen. The similarity in the trends in the two countries suggests that causes of this phenomenon should be sought in similarities such as the technological environment rather than in country specific factors like unionization or trade intensities.

L’objectif de cet article est de mesurer la competitivite des industries canadiennes par rapport a leurscontreparties americaines. Nos resultats suggerent que les recentes bonnes nouvelles en matiere d’economieet une solide performance commerciale masquent les problemes de la competitivite du Canada. La progressionsoudaine des exportations et un fort accroissement de l’excedent commercial ont ete generes en grandepartie par la prosperite de l’economie des Etats-Unis et la forte reelle devalorisation du dollar canadien faceau dollar americain, et non par une quelconque amelioration de la competitivite sous-jacente. En fait, leCanada a perdu beaucoup de terrain au profit des Etats-Unis en ce qui concerne la productivite, determinantfondamental de la competitivite sous-jacente. La performance relativement faible du Canada en termesd’accumulation de capitaux, d’innovation, de main-d’œuvre hautement qualifiee, de l’importance plus grandedes petites entreprises dans l’economie et d’un ralentissement du passage aux industries de la NouvelleEconomie, tous ces facteurs ont contribue aux difficultes que connaissent la productivite et la competitivite.The objective of this paper is to evaluate the competitive position of Canadian industries vis-a-vis theirAmerican counterparts. Our results suggest that recent good economic news and a strong trade performancemask Canada’s competitiveness difficulties. The export surge and a big increase in the trade surplus werelargely the result of a strong US economy and a large real depreciation of the Canadian dollar vis-a-vis theUS dollar, but were not due to any improvement in underlying competitiveness. As a matter of fact, Canadalost substantial ground to the United States in productivity, the fundamental determinant of the underlyingcompetitiveness. Canada’s relatively weak performance in terms of capital accumulation, innovation, highlyskilled labour, greater importance of small-sized firms in the economy and a slower shift to New Economyindustries all have contributed to its productivity and competitiveness difficulties.

Using firm-level data, this paper examines the R&D intensity (R&D per unit of output) of foreign-controlled and Canadian-controlled firms based in Canada. The empirical results suggest that foreign-controlled firms, after accounting for the influence of other factors, are less R&D-intensive than Canadian-controlled firms, and this gap has not narrowed during the past ten years. On average, R&D intensity tends to be higher in high-tech and export-oriented firms, compared to low and medium technology and non-exporting firms. However, despite a lower R&D intensity, foreign-controlled firms based in Canada are more productive and pay higher wages than Canadian-controlled firms. These results in turn suggest that foreign-controlled firms benefit heavily from technology and knowledge transfer from their parent companies.