Export Growth, Capacity Utilization and Productivity Growth: Evidence from Canadian Manufacturing Plants

Abstract

Labour productivity growth in the Canadian business sector slowed substantially after 2000. Most of the slowdown occurred in the manufacturing sector. This paper examines how this slowdown was associated with the restructuring that occurred in manufacturing as a result of the increase in excess capacity, the dramatic increase in the Canada – U.S. exchange rate and a slowdown in export growth. The paper finds that at least half of the slowdown in aggregate productivity growth is because of the pro-cyclical nature of productivity growth arising from capacity utilization. Almost all of the aggregate productivity growth slowdown is driven by exporters, who had large declines in labour productivity growth in the post-2000 period.

Keywords: business sector, capacity utilization, exchange rates, exports, labour productivity, manufacturing, productivity growth

JEL Classification: O47, J24, D24, F43, L60