Intangible Capital and Productivity Growth in Canada

Abstract

This paper develops a measure of intangible capital and examines the contribution of intangibles to labour productivity growth in the Canadian business sector. It applies the methodology developed by Corrado et al. (2005, 2009) for the United States. The paper finds that investment in intangibles totalled an estimated $151 billion in the Canadian business sector in 2008, which represents 13.2% of gross domestic product in that year. Investment in intangibles has increased much faster than investment in tangibles over time, and the ratio of intangible investment to tangible investment increased from 0.23 in 1976 to 0.66 in 2008. The paper shows that intangibles made a significant contribution to labour productivity growth and that the contribution of intangibles to labour productivity growth was only slightly lower than the contribution of tangibles in the Canadian business sector. The contribution of intangibles to labour productivity growth was lower in Canada than in the United States for the post-1995 period, as a result of Canada’s lower investment in intangibles (software as well as research and development) in recent years.

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Keywords: productivity, intangible capital, innovation, investment

JEL Classification: J24, O4, D24, O3, E2