rate for total non-farm goods excluding energy producing industries, the most encompassing capacity utilization rate available. The capacity constraints on con-
struction has been lifted as it can be supplemented by US capacity, as suggested on the Service Sector Productivity and the Productivity Paradox pre-conference.
The international commodity prices are approximated by the US prices, given that 70 of Canada’s trade is with the United States. We have used the US
producer prices from the US Bureau of Labor Statistics, Office of Employment Projection. They are made relative prices using final demand shares to define the
price level. The 169 commodity classification has been bridged to Statistics Canada’s 94 commodity classification. To convert US prices to Canadian equiva-
lents, we have used, whenever available, unit value ratios, UVRs, which are industry specific computed and kindly provided to us by de Jong 1996. The
UVRs are computed using Canadian quantities valued at US prices. For the other commodities, we have used the purchasing power parities computed by the OECD
which are based on final demand categories. The UVRs establish international price linkages for 1987, the PPPs for 1990 in terms of Canadian dollars per US
dollar. We hence need two more transformations. First, US dollars are converted to Canadian dollars using the exchange rates taken from Cansim series 0926B3400.
Second, since the input – output data are in 1986 prices, we need the linkage for 1986, which is computed by using the respective countries’ commodity deflators —
the producer price index for the US see above and the total commodity deflator from the make table except for commodities 27, 93 and 94, for which we use the
import deflator from the final demand table for Canada.
Commodities 13, 44, 70, 71, 72, 79, 81, 82, 88, 91 and 92 are considered as non-tradeable, for which no trade shows up in the input – output tables for most of
the sample period. For computational reasons and similar output composition, we have aggregated the nontradeable commodities 70 – 72 residential, non-residential
and repair construction. Due to the absence of labor,capital stock and intermediate inputs for industry 39 government royalties on natural resources, it has been
aggregated with industry 5 crude petroleum and natural gas. In the end, we are thus left with 49 industries and 92 commodities, which are listed in Tables 1 and 2.
A more detailed documentation of the data and their construction is available from the authors upon request.
4. Results
Perhaps it is most illuminating to discuss the temporally aggregated results first. In Table 3, we have productivity growth figures obtained using endogenous
weights, i.e. evaluated at the shadow prices and optimal activity levels of the linear program. Table 3, under the heading TFP decomposition, shows a 1.26 annual
TFP-growth rate over the 1962 – 1974 period. We chose the period breakpoints before the slump years 1975 and 1982 to compare productivity performances over
comparable phases of the business cycle
2
. Canada hit recessions from January to March 1975, from May to June 1980, from August 1981 to November 1982, and
from April 1990 to March 1991, according to Bergeron et al. 1995. Over the next business cycle 1974 – 1981, TFP-growth fell to − 1.63. It recovered to − 0.72
per annum in the 1980s 1981 – 1991. The preference-shift effect was nearly zero in the first and last periods and positive in the middle period, when consumers
apparently switched their patterns of demand towards commodity bundles with lower contents of expensive factors. The technical change effect explains the lion’s
share of TFP-growth — the Solow residual fell far below zero after 1974, but then recovered in the 1980s. The terms of trade effect played a minor role and followed
a similar pattern as technical change. At the optimal terms of trade and trade balance, relative world prices moved so as to increase our purchasing power before
1970 and to decrease it afterwards. The three effects add up to TFP-growth.
From its definition, TFP-growth can also be decomposed into its constituent marginal productivity growth rates. We then get a second accounting identity. The
numbers, at the bottom of Table 3, are slightly different because of rounding. We see that the contribution of labor productivity declined on average by 1.68 per
year in 1962 – 1974 and by 0.73 per year in 1981 – 1991. During the turbulent period of the oil shocks 1974 – 1981, it actually increased on average by a strong
4.19 per annum. Capital productivity growth followed the same pattern as TFP-growth reflecting the predominant value of capital in the value of output. The
contribution of the productivity of the trade deficit, i.e. the increased consumption permitted by a marginal increase in the allowed deficit was small throughout.
The primary sector very much determines the aggregate evolution in Canadian productivity. It was mostly struck by the slowdown in the 1970s, but also led to the
recovery in the 1980s. Manufacturing and construction are average sectors, follow- ing the economy-wide Solow residual. Of the remaining service sectors the first
three are surprisingly healthy. Transportation, trade, and to a lesser extent commu- nication, all perform above the economy-wide average. Last and least, FIRE and
BP services drag the economy.
Table 4 lists the annual productivity growth figures giving a more precise timing of the up- and downturns of productivity growth. As is well-known and also very
apparent here, TFP-growth fluctuates a lot. The primary sector, manufacturing and construction feature as many negative as positive Solow residuals over time.
Transportation, communication and trade report predominantly solid positive Solow residuals confirming their status as progressive sectors. Last and least, FIRE
and BP services have a negative performance. It is interesting that shadow price based Solow residuals fluctuate to the extent that not a single year reports
economy-wide positive values.
We have checked the sensitivity of our results to the use of net instead of gross capital stocks. The solutions to the linear programs are unaffected, so are the
2
A referee suggested that this comparability renders the corrections or utilization rates irrelevant. However, the inclusion of utilization rates ensures that capital constraints are not binding in the actual,
observed allocation, and, therefore, avoids the possibility that there is excess labor, with zero labor productivity.
Table 1 List of commodities
a
Grains 1
2 Live animals
Other agricultural products 3
4 Forestry products
5 Fish landings
Hunting and trapping products 6
Iron ores and concentrates 7
Other metal ores and concentrates 8
9 Coal
Crude mineral oils 10
11 Natural gas
Non-metallic minerals 12
Services incidental to mining 13
Meat products 14
Dairy products 15
Fish products 16
17 Fruits and vegetables preparations
Feeds 18
Flour, wheat, meal and other cereals 19
20 Breakfast cereal and bakery products
Sugar 21
Miscellaneous food products 22
Soft drinks 23
Alcoholic beverages 24
Tobacco processed unmanufactured 25
26 Cigarettes and tobacco manufacturing
Tires and tubes 27
Other rubber products 28
Plastic fabricated products 29
Leather and leather products 30
31 Yarns and man made fibres
Fabrics 32
Other textile products 33
34 Hosiery and knitted wear
Clothing and accessories 35
Lumber and timber 36
Veneer and plywood 37
Other wood fabricated materials 38
Furniture and fixtures 39
Pulp 40
Newsprint and other paper stock 41
Paper products 42
Printing and publishing 43
44 Advertising, print media
Iron and steel products 45
Aluminum products 46
47 Copper and copper alloy products
Nickel products 48
Other non-ferrous metal products 49
Table 1 Continued 50
Boilers, tanks and plates 51
Fabricated structural metal products 52
Other metal fabricated products 53
Agricultural machinery 54
Other industrial machinery 55
Motor vehicles 56
Motor vehicle parts 57
Other transport equipment Appliances and receivers, household
58 59
Other electrical products 60
Cement and concrete products Other non-metallic mineral products
61 62
Gasoline and fuel oil Other petroleum and coal products
63 Industrial chemicals
64 Fertilizers
65 66
Pharmaceuticals 67
Other chemical products Scientific equipment
68 69
Other manufactured products Construction
70 71
Pipeline transportation Transportation and storage
72 73
Radio and television broadcasting 74
Telephone and telegraph Postal services
75 76
Electric power
77 Other utilities
78 Wholesale margins
79 Retail margins
80 Imputed rent owner ocpd. dwel.
81 Other finance, insurance, real estate
82 Business services
83 Education services
Health services 84
85 Amusement and recreation services
86 Accommodation and food services
Other personal and misc. services 87
88 Transportation margins
Supplies for office, lab. and cafetaria 89
Travel, advertising and promotion 90
Non-competing imports 91
92 Unallocated import and exports
a
The nine bold indexes indicate non-tradeable commodities. The commodities correspond to the M-classification of the Canadian input-output tables, except for the aggregation of the original
commodities 70–72.
Table 2 List of industries
a
Agricultural and related services industries 1
2 Fishing and trapping industries
Logging and forestry industries 3
4 Mining industries
5 Crude petroleum, natural gas, government’s royalties on natural resources
Quarry and sand pit industries 6
Service related to mineral extraction 7
Food industries 8
9 Beverage industries
Tobacco products industries 10
11 Rubber products industries
Plastic products industries 12
Leather and allied products industries 13
Primary textile and textile products industries 14
Clothing industries 15
Wood industries 16
17 Furniture and fixtures industries
Paper and allied products industries 18
Printing, publishing and allied industries 19
20 Primary metal industries
Fabricated metal products industries 21
Machinery industries 22
Transportation equipment industries 23
Electrical and electronic products 24
25 Non-metallic mineral products industries
26 Refined petroleum and coal products
Chemical and chemical products industries 27
Other manufacturing industries 28
Construction industries 29
Transportation industries 30
31 Pipeline transport industries
Storage and warehousing industries 32
Communication industries 33
34 Other utility industries
Wholesale trade industries 35
Retail trade industries 36
Finance and real estate industries 37
38 Insurance
Owner occupied dwellings 39
Business service industries 40
Educational service industries 41
Health service industry 42
Accommodation and food service industries 43
Amusement and recreational services 44
45 Personal and household service industries
Other service industries 46
Operating, off., cafet. and lab. Sup. 47
48 Travel, advertising and promotion
Transportation margins 49
a
The industries correspond to the M-classification of the Canadian input–output tables, except for the aggregation of the original industries 5 and 39. The industries are defined according to the 1980
Standard Industrial Classification.
Table 3 Average annual growth rates and TFP decomposition at shadow prices and optimal activity levels
1962–1974 1974–1981
1981–1991 Solow residual
− 7.46
− 0.42
Primary sector 1.46
0.57 Manufacturing
− 0.22
− 1.11
− 0.19
Construction −
1.11 0.00
2.60 Transportation
− 0.04
0.38 −
0.96 Communication
− 0.21
1.85 1.13
Trade −
0.04 0.29
FIRE −
1.89 −
2.49 −
3.81 BP services
− 2.50
− 2.01
0.32 TFP decomposition
− 1.59
Solow residual −
0.67 1.09
− 0.08
− 0.14
Terms of trade 0.22
0.02 Preference shift
− 0.04
0.10 −
0.72 TFP-growth
1.26 −
1.63 Marginal producti6ity growth contributions
− 1.68
4.19 Labor
− 0.73
− 0.02
3.17 −
6.28 Capital
0.05 0.49
Trade deficit −
0.21 −
0.70 −
1.59 TFP-growth
1.28
optimal shadow wage rates. The only difference is in the shadow prices of capital, which adjust to the new capital stock measures so as to yield zero profit conditions.
It is like a scaling problem. All that matters in our model for the expansion to the efficiency frontier are the rates of capacity utilization. The choice of measurement
for the capital stocks would only matter if capital from various sectors was substitutable. TFP-growth rates differ because the marginal productivities of capital
differ. But both qualitatively and quantitatively, the results are rather similar.
5. Conclusions and qualifications
