"Productivity is our economic destiny," says Andrew Sharpe, Director of the Centre for the Study of Living Standards in Canada. Productivity is indeed important because it is related to the level of living standards (defined as GDP per capita) and the economic well-being of a specific country. As a result, when productivity rises, both factors rise accordingly. The most common measure used to calculate a country's productivity and its economic performances is the labor productivity, measured in terms of the output per hours worked, which in turn evaluates the effectiveness of the country's firms. A recent study by The Canadian Productivity Review suggests that "since the early 1980s, the U.S labor productivity growth has exceeded Canadian growth and the gap has particularly widened after 2000?. The purpose of this essay is therefore not to prove that the Canadian productivity lags behind that of the U.S, but to present and examine the most reasonable explanations for this phenomenon. It is interesting to specifically analyze the post-2000 period, during which the gap has significantly widened.
[...] Conclusion We have been able to characterise in detail, with real life examples, one of the features that explains why the Canadian productivity lags behind that of the US. Using different findings in the literature, we also managed to explain the relationship that exists between the investments in ICT, their implementation, and their influence on the overall Canadian economy. We realised that this factor cannot, in itself, explain all of Canada's problems, and that Canada's performances should improve with the implementation of specific measures by the government. [...]
[...] The data shows that the gap between US and Canadian productivity can partly be accounted for the gap in ICT Investment that has risen since the 1980's. Chart 1 and 2 summarize these facts simply. Average annual growth of ICT Investment in the business sector in 2004 has been of and in the US and Canada respectively. The international data is even more striking; Canada trails at the 8th position in selected OECD countries. Chart 1 Source: Center for the Study of Living Standards Website Chart 2 Source: Center for the Study of Living Standards Website Delayed effect see the computer age everywhere except in the productivity statistics” Robert Solow Few papers take the lagged effect of ICT investment into account when analysing ICT's consequences. [...]
[...] The Quarterly Journal of Economics (2002) - Canadian Productivity Review „Long-term Productivity Growth in Canada and the U.S (1961 to 2006)”. Statistics Canada 19 - Gera and Gu:„The Effect of Organizational Innovation and Information and Communications Technology“. International Productivity Monitor (2004) - Goff, “Invisible Borders: Economic Liberalization and National Identity”-International Studies Quarterly (2000) 44 p533 - Gordon, „Exploding Productivity Growth: Context, Causes and Implications“. Brookings Paper on Economic Activity, 2003 - Harchaoui, Information Technology and Economic Growth in Canada and the US“Monthly Labour Review (2002) - Oliner and Sichel: Resurgence of Growth in the Late 1990's: Is Information Technology the Story?“ Journal of Economic Volume 14, Number 4 (2000) - Porter and Martin: „Canadian Competitiveness: Nine years after the Crossroads“. [...]
[...] Intangible costs While it is widely recognised that capital deepening in ICT is behind the US productivity acceleration since 2000 (Oliner and Sichel 2000) it is also important to note that by no means have these investments been confined to the US. Yet Canada, the EU and Japan's output growth experiences have been different. What could explain such a difference? To answer this question, we need to further analyse the influence of complementary investments related to ICT investments. According to Gordon (2003), ICT requires such investments (also known as intangible costs) like business reorganisation, and acquisition of human capital in order to fully promote productivity. [...]
[...] Table 1 shows that after accelerating in the 1990's at the same rate as that of the U.S, productivity growth has stagnated to in the overall 2000-2006 period, and to 0 in 2004. What makes this topic even more interesting is that both countries share many similarities since 1990 and beyond. Economically on one hand, the US and Canada are highly integrated, specifically since the bilateral free trade agreement (FTA) of 1988 and the North American Free Trade Agreement (NAFTA) of 1994. [...]
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