The Canadian Productivity Stagnation, 2002-2014

Abstract

Total Factor Productivity (TFP) growth in Canada between 2002 and 2014 has been only 0.16% per year. Although many developed countries have experienced a productivity slowdown since the beginning of the century, this figure is still substantially smaller than that of the U.S. We perform multiple counterfactual exercises to show that this difference in TFP growth cannot be accounted for by several compositional effects and/or mismeasurements of factors of production. We identify two key sectors (Mining and Manufacturing) that drive all of the TFP growth difference with the U.S. Despite the lack of TFP growth, Canada has experienced sustained income growth due to a prolonged period of appreciation of the terms of trade (while terms of trade in the U.S. have deteriorated), making real income in the two countries grow at similar rates.