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October 2002, Vol. 125, No.10
Information technology and economic growth in Canada and the U.S.Tarek M. Harchaoui, Faouzi Tarkhani, Chris Jackson, and Philip Armstrong
Information and communication technology (ICT) equipment appears to be almost everywhere—in the office, on the factory floor, in the classroom, at home, and, even in people’s pockets. By all accounts, ICT appears to be rapidly changing the way many enterprises conduct business and communicate. The proliferation of ICT has made the world seem much smaller, as computer-related innovations, such as the Internet, let individuals on opposite sides of the world interact in ways that were unimagined 20 years ago.
The explosion of ICT spending over the last few decades has sparked renewed interest in the role of investment and capital accumulation as sources of economic growth. While productivity growth, capital accumulation, and the impact of technology were topics once reserved for academic debates, the success of the U.S. economy during the late 1990s has moved such issues into the popular domain.1
Using revised data on output and capital input, this article sheds some new light on the changing composition of investment and the growth of capital services in Canada during the 1990s and makes comparisons to the 1980s.2 It discusses the data sources and the historical trends of investment and capital formation and then analyzes the effect of these trends on labor productivity and multifactor productivity performance.
In particular, this article employs well-tested and familiar methods to estimate annual indexes of capital services for the Canadian business sector from 1981 to 2000 and introduces a decomposition into quantity and quality components for broad asset classes, including ICT equipment. While much of the recent Canadian economic literature has documented the growing importance of computers, this article examines and compares the extent to which ICT and other types of capital have contributed to economic growth in Canada. Finally, it examines the underpinnings of the productivity performance of the Canadian and U.S. business sectors over the last two decades, using comparable methodologies.
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1 See D. W. Jorgenson, and K. J. Stiroh, 2000, "Raising the speed limit: U.S. economic growth in the information age," Brookings Papers on Economic Activity, vol. 1, pp. 125–211; and for a Canada-U.S. comparison, see H. Khan and M. Santos, Contribution of ICT Use to Output and Labour-Productivity Growth in Canada, Bank of Canada Discussion Paper, 2002.
2 The data used in this study are those available in March 2002. Therefore, they do not reflect the recent revisions that both Statistics Canada and the U.S. Bureau of Labor Statistics have incorporated in their estimates. A more recent Canada-U.S. comparison based on the last productivity figures can be found in The Daily of July 12, 2002, Statistics Canada’s news release, on the Internet at: www.statcan.ca.
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