Public Capital and its Contribution to the Productivity Performance of the Canadian Business Sector

Abstract

This paper quantifies the contribution of public capital to productivity growth in the Canadian business sector. The approach developed here incorporates demand and supply forces, including the contribution of public capital, which may affect productivity performance. We estimate the model using disaggregated data composed of 37 industries in the Canadian business sector for the period 1961-2000. The results indicate that the main contributors to productivity growth, both at the industry and aggregate levels are technical change and exogenous demand (representing the effect of aggregate income and population growth). Public capital contributed for about 18% of the overall business sector multi-factor productivity growth over the 1961-2000 period. This is somewhat lower than the figures reported in the literature. However, the magnitudes of the contribution of public capital to productivity growth vary significantly across industries, with the largest impact occurring in transportation, trade and utilities.

Keywords: public capital, productivity, infrastructure, externalities

JEL Classification: H50, H54, D24, O47