IT has growing impact on Canadian productivity: study

Investment into IT has had a growing impact on Canadian productivity and output growth over the past decade, the Conference Board of Canada reported Thursday.

The recent surge in IT investment is phenomenal, said vice-president and chief economist of the Conference Board Jim Frank in a press release issued yesterday by the Information Technology Association of Canada (ITAC).

The study prepared for ITAC, IBM Canada and Microsoft Canada confirms the findings of similar studies in the United States showing that the surge in information technology investment is having a growing impact on productivity and output growth, said Bob Morine, ITAC chairman and IBM Canada’s public sector vice-president and general manager.

“We’ve seen a dramatic about-face from prominent opinion leaders in the United States about the impact of IT investment on productivity and the long boom,” Morine is quoted in the ITAC release as saying.

“The most notable is Alan Greenspan, Chairman of the Federal Reserve, who has been transformed into a believer in the impact of IT – as the result of new studies coming out of the U.S. Department of Labor Statistics.”

“This study from the Conference Board provides some valuable new insights about the impact of IT on productivity in Canada. It’s important work and it will help us chart an appropriate course as Canada enters the new economy,” president of Microsoft Canada Frank Clegg is quoted as saying in the ITAC release.

ITAC reported that Canadian gains in productivity have lagged behind those of the United States, but the findings of the study point to good prospects for Canada’s ability to match U.S. gains in the coming years.

Frank reported the stock of IT capital has been growing by about 30 per cent a year for 20 years. For example in 1980, total real Canadian IT capital was a paltry $0.44 billion. This strong growth had, by 1999, increased Canada’s IT capital stock to $80.4 billion, he said. But by way of comparison, this is equal to 5.7 per cent of our capital stock compared to about 13.5 per cent in the United States. One way to look at this is to say that IT capital as a share of capital stock in Canada is about where the U.S. was 20 years ago, Frank explained.

The impact on gross domestic product (GDP) growth of investment in IT capital is almost as much as that of investment in non-IT capital. This is significant because IT capital accounts for only about five per cent of the capital stock, and non-IT capital the other 95 per cent.

Frank said that it was found that IT investment increased its contribution to the GDP growth rate from virtually nothing in the 1980s, to about 0.1 percentage points in the early 1990s, and about 0.4 percentage points in the late 1990s. This is an important and accelerating change, he said.

Further, the explosion in IT investment suggests that IT is at the heart of faster total factor productivity (TFP) growth, especially in light of very slow growth in non-IT investment and the normal growth in employment, according to Frank.

As a share of Canada’s total capital stock, IT capital had increased to 4.4 per cent in 1998. This compares with 13.5 per cent in United States in the same year. According to Frank this means that Canadians have started investing in IT later and are still well behind the situation in United States.

There is evidence that the pace of investment and its impact on productivity is accelerating. In 1999, IT capital stock amounted to 5.7 per cent of total capital stock – up from 4.4 per cent just a year earlier.

Frank presented the findings of the Conference Board’s study via a Webcast on Thursday at ITAC is at