Canada’s Recent Productivity Record and Capital Accumulation

Abstract

This paper analyzes the role of capital accumulation in the Canada-U.S. labour productivity gap in the 1990s. The empirical results indicate that the M&E capital intensity is more important than the structures capital intensity for labour productivity. The inter-industry variation in labour productivity level is highly and positively correlated with differences in M&E capital intensity. Similarly, the inter-industry differences in the labour productivity level gap between Canada and the U.S. are also highly and positively correlated with differences in the M&E capital intensity gap. At least 12% of the business sector Canada-U.S. labour productivity level gap in 2000 was due to the capital intensity gap between the two countries. More importantly, much of the widening of the labour productivity level gap at the aggregate level in the second half of the 1990s was due to the widening of the capital intensity gap. Depreciation of the Canadian dollar and the unemployment rate gap between the two countries seem to have contributed significantly to the faster rate of increase in the capital-to-labour cost in Canada in the 1990s, hence to the widening of the capital intensity and labour productivity level gaps.

Keywords

• capital