Canada’s weak technology investment hampers improvements in living standards

Over the past decade, low business investment in technologies that increase worker productivity has been holding back Canada’s economic growth and impeding improvements in living standards, 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 Canada’s standard of living,” 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.

Crucially, during these same years, productivity-enhancing investment in information and communications technologies (for example, communications software and hardware) 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% of total investment in Canada compared to 16.5% in the U.S. And investment in R&D and other intellectual products was more than twice as much in the U.S. (27.7% of total investment) compared to 12.6% 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.

Click here to read the full report: Comparison of Canada’s and the United States’ investment performance over the past five decades.