Fact of the Week: Reduced ICT Investments Explain Part of Canada’s Productivity Slowdown

Reduced ICT investments explain up to 40 percent of Canada’s productivity slowdown since 2003.

Source: Jeff Mollins and Pierre St-Amant, “The Productivity Slowdown in Canada: An ICT Phenomenon?” Bank of Canada Staff Working Paper 2019-2, January 2019.

Commentary: Between 1993 and 2003, Canada’s labor productivity grew at an average rate of 1.6 percent annually. The following decade, average labor productivity growth fell by more than a third to 1.0 percent, with comparable slowdowns occurring in most OECD countries, dampening economic growth globally. A new study examined the influence of ICT use and production on Canada’s labor productivity growth from 1993 to 2014, finding significant declines in ICT investment and ICT-driven growth.

Pre-2003, ICT capital stock grew at 7.6 percent and ICT use and production caused between 0.49 percent and 0.54 percent growth in labor productivity, nearly a third of Canada’s overall growth. Post-2003, ICT capital stock growth fell to 4.2 percent and ICT-driven productivity growth fell to between 0.27 percent and 0.41 percent, accounting for 20 to 40 percent of Canada’s overall productivity slowdown.