Study shows IT's increasing contribution to Canada's productivity and output growth

A report commissioned by the Information Technology Association of Canada (ITAC), IBM Canada Ltd and Microsoft Canada shows that investment in information technology (IT) is having a significant positive impact on Canada's output growth and labour productivity. Between 1990 and 1999, total real IT investment stock rose from $3.8 billion to $30 billion, helping to push its contribution to annual growth up dramatically by the end of the decade.

The study was conducted by the Economic Services Group of the Conference Board of Canada (CBOC) and is based on recent Statistics Canada data.

The data show that IT capital contributed 0.38% to the 2.95% average annual growth between 1996 and 1999, and its impact on growth and productivity is likely to increase further. That compares to the 0.13% it contributed during the previous five-year period (1991-95), when average output growth was 2.71%.

In terms of labour productivity, IT contributed more than one third of productivity growth during the 1996-99 period. Labour accounts for more than 40% of overall growth.

The CBOC study is the first of its kind in Canada and it is only in recent years that research has shown a strong correlation between IT investment and labour productivity. Recent US studies have made similar findings suggesting that "the surge in information technology investment is definitely having a growing impact on labour productivity and output growth". The US studies show that IT capital is contributing even more to labour productivity and output growth than it is in Canada.

Part of the reason may be the heavier investment in IT in the US. In 1999, IT's share of real private machinery and equipment investment in the US commanded an impressive 52% share, while in Canada IT was only 33% of the total. In the early 1990s, the US did not feel the deep impact of recession as Canada did, allowing the US to close its output gap (the gap between what the economy produces and its potential output) by mid-1997. Canada had narrowed its output gap to 1.9% by 1999and it is expected to be fully eliminated by the end of this year.

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