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Sources of Canadian economic growth

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  • Samira Hasanzadeh
  • Hashmat Khan

Abstract

We apply modern ideas‐oriented growth accounting, based on the semi‐endogenous growth theory of Jones (2002), to compare the sources of Canadian and US economic growth between 1981–2014. This framework allows us to distinguish between transition dynamics and steady state growth as well as quantify their respective contributions. We find that the bulk of the 1.1 percentage points total average Canadian growth rate of output per hour has been due to transitional factors, mainly capital intensity and domestic human capital growth driven by educational attainment. The growth in excess ideas (total ideas growth minus steady state growth) has contributed a small share of 0.06 percentage points. Two features stand out in comparison to the US growth experience over the same period. First, over a full percentage point of the average US growth of 1.64% is due to excess ideas growth. Second, the “constant growth view” that reconciles large sources of transitional growth with relatively stable average growth is not supported in Canada. We estimate a relatively low elasticity of output with respect to world research effort as the reason behind the small share of R&D‐oriented sources of Canadian growth. Sources de la croissance économique canadienne. Les auteurs appliquent des méthodes modernes de comptabilité de la croissance orientées sur les idées, basées sur la théorie de la croissance semi‐endogène de Jones (2002), pour comparer les sources de la croissance économique du Canada et des États‐Unis entre 1981 et 2014. Ce cadre d’analyse permet de distinguer entre la dynamique de transition et la croissance en régime permanent ainsi que leurs contributions respectives. On découvre que le gros du 1.1 % de taux de croissance de la production totale moyenne par heure du Canada est attribuable aux facteurs de transition – en gros l’intensité du capital et la croissance du capital humain domestique liée au niveau d’éducation. La croissance dans les idées excédentaires (les idées totales moins celles qui émergent de la croissance en régime permanent) a contribué à une faible portion de 0.06 de point de pourcentage. Deux points ressortent de la comparaison avec l’expérience des États‐Unis pour la même période. D’abord, plus qu’un plein point de pourcentage de la croissance moyenne des États‐Unis, qui s’étable à 1.64 %, est attribuable à la croissance des idées excédentaires. Ensuite, “la perspective de la croissance constante” qui réconcilie de grandes sources de croissance transitionnelle avec la croissance relativement stable n’est pas supportée par les données canadiennes. On évalue à relativement faible l’élasticité de la production canadienne en réponse à l’effort de recherche mondial – ce qui serait la raison pour laquelle une faible portion de la croissance canadienne attribuable à la R&D.

Suggested Citation

  • Samira Hasanzadeh & Hashmat Khan, 2019. "Sources of Canadian economic growth," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(1), pages 279-302, February.
    • Handle: RePEc:wly:canjec:v:52:y:2019:i:1:p:279-302
    DOI: 10.1111/caje.12372
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    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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