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Weak corporate investment in technology compared to the US hinders improvement in living standards

Weak corporate investment in technology compared to the US hinders improvement in living standards

Fraser Institute

VANCOUVER, British Columbia, July 11, 2024 (GLOBE NEWSWIRE) — Over the past decade, low business investment in technologies that improve worker productivity has held back Canada’s economic growth and impeded improvements in living standards in the country, according to a new study released today by the Fraser Institute, an independent, nonpartisan Canadian think tank.

“Weak business investment in technologies, such as IT and R&D, that help Canadian workers be more productive is hindering improvements in Canadian living standards,” said Steven Globerman, a senior research fellow at the Fraser Institute and co-author of the study Comparison of Canada’s and the United States’ investment performance over the past five decades.

According to the study, total investment in Canada relative to the size of the economy has been larger on average than in the U.S. over the past two decades. This result is largely due to the massive investment in housing in Canada compared to the U.S. Consider, for example, that between 2014 and 2021, investment in housing accounted for 34.1 percent of total investment in Canada compared to 18.5 percent in the United States.

But most importantly, during the same years, productivity-enhancing investment in information and communication technologies (for example, software and communications equipment) and in intellectual property products, such as research and development, was significantly lower than in the United States. Consider that IT investment accounted for 10.4 percent of total investment in Canada, compared with 16.5 percent in the United States. And investment in research and development and other intellectual products was more than twice as high in the United States (27.7 percent of total investment) compared with 12.6 percent in Canada.

Underinvestment in key technologies is evident in Canada’s productivity numbers, which are essential to improving living standards. From 2014 to 2022, output per hour worked, a common measure of labor productivity, grew by an average of 1.35% per year in Canada, compared with an average of 1.78% per year in the U.S.

“If governments in Canada want to promote rising living standards through faster productivity growth, they need to create a policy environment that is attractive to productivity-enhancing business investment, rather than just focusing on building more housing,” Globerman said.

CONTACT WITH THE MEDIA:
Steven Globerman, Senior Researcher
Fraser Institute

To arrange a media interview or for more information, please contact:
Drue MacPherson, 604-688-0221 ext. 721, [email protected]

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The Fraser Institute is an independent Canadian public policy research and education organization with offices in Vancouver, Calgary, Toronto and Montreal, and affiliated with a global network of think tanks in 87 countries. Its mission is to improve the lives of Canadians, their families and future generations by researching, measuring and broadly communicating the impact of government policy, entrepreneurship and choice on their well-being. To protect its independence, the Institute does not accept government grants or research contracts. Visit www.fraserinstitute.org