Investment in information technology has had a growing impact on Canadian productivity and output growth over the past decade, the Conference Board of Canada reported in late November.
“The recent surge in IT investment is phenomenal,” says Jim Frank, vice-president and chief economist of the Conference Board. He adds the stock of IT capital has grown by about 30 per cent annually for 20 years. “We’ve never seen this kind of growth for so long and it’s transforming how business is carried out in Canada,” Frank says.
According to the Conference Board, the explosion in IT investment indicates IT is at the core of faster total factor productivity (TFP) growth, especially considering the current slow growth in non-IT investment and the normal growth in employment. In addition, the Conference Board finds that investment in IT capital has had about as much impact as non-IT capital investments on GDP growth in Canada. This is significant because IT capital typically accounts for only about 5 per cent of total capital stock, with non-IT capital making up the other 95 per cent.
“We 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,” Frank says. “This is an important and accelerating change.”
However, he cautions that Canadian gains in productivity and output growth continue to lag those of the United States. For example, IT capital stock in Canada equalled roughly 5.7 per cent of the country’s total capital stock in 1999, compared to about 13.5 per cent in the United States for the same year.
“It seems clear that Canadians have started investing in IT later and are still well behind the situation in the United States,” Frank says.
The Conference Board’s study was prepared on behalf of the Information Technology Association of Canada (ITAC), IBM Canada and Microsoft Canada. More information about the Conference Board’s study can be found at http://www.conferenceboard.ca.