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News Release

January 10, 2001

Technology Driving Growth, But Lack of Skills Keep it Moderate

Technology has been driving Canada’s growth for the past few decades, but it is also to blame for the country’s economic slowdowns, according to two new studies by a University of Guelph economist.

Research by economics professor Stephen Kosempel and Kenneth Carlaw from the University of Canterbury, New Zealand, shows that there is actually a negative relationship between certain types of technology and output in the Canadian economy. Kosempel said it is mostly due to the simple fact that skilled labour has a hard time keeping up with the pace of the advancement. The studies, under review by the Journal of Economic Growth, used unique modelling techniques to draw such conclusions and are the only ones based on Canadian rather than U.S. rates of technological change and growth.

“We found that periods of low productivity growth correspond to periods of high technological change,” Kosempel said. “During periods of rapid change, older skills become obsolete, and people need to be retrained. This means that investment in new technology is all front- end loaded. The payoff to such an investment occurs in the future as the technology matures and learning by doing occurs.”

For their research, Kosempel and Carlaw created an economic model that mimicked Canada’s economy. They found that most of the country’s economic gains since the mid 1970s are due to the development of cutting-edge technology. In fact, had skilled labour kept pace with these advancements, Canada would now be the wealthiest country in the world, they said. “The 1970s signified the beginning of an era of rapid technological progress,” Kosempel said. “This was associated with the development of information and communication technology, robotics and microchip technology. Yet these technological advances had a negligible impact on productivity growth, and we wanted to find out why.”

Kosempel and Carlaw found that between 1961 and 1973, income per capita in Canada grew at an average rate of 3.3 per cent, but slowed between 1974 and 1996 to about 1.1 per cent. The reasons include the lack of people skilled to operate the advanced developments, and the fact that Canadians invest less in equipment than Americans do, which means Canada receives fewer benefits from improvements to technology embodied in capital goods. While the differences in growth levels may seem small, Kosempel points out that had growth continued at the higher rate throughout the entire 40-year period, Canada would have topped the list of the world’s most wealthiest countries. By comparison, if growth never crept above 1.1 per cent, Canada’s world- wealth ranking would have dropped from fifth to 18th. “It is clear that very small differences in growth rates have significant implications for economic performance over time,” Kosempel said.

Prof. Stephen Kosempel, Department of Economics
(519) 824-4120, Ext. 3948

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