The Post-2001 Productivity Growth Divergence between Canada and the United States

The high degree of integration between the Canadian and the U.S. economies promotes sharing of technologies and innovation spillovers that are conducive to long-term productivity growth convergence. However, since 2001 labour productivity growth rates have diverged in sharp contrast to the previous four decades. A comparison of labour productivity growth decomposed into contributions by industry for both countries reveals that the information and cultural services industry has played an outsized role in the divergence, the start of which coincides with the dot-com recession of the early 2000s. Limits on foreign investment, most notably but not exclusively related to telecommunications, and strong output price growth relative to the United States are key factors for undertaking a simple counterfactual analysis to evaluate the role of competitive intensity in the information and cultural services industry. Estimates of markups and their impact on labour productivity growth suggest that limited competition has significantly reduced the productivity performance of that industry as well as the performances of others that are dependent on its services as intermediate inputs.