1 A Canadian Business Secor Daa Base and New Esimaes of Canadian TFP Growh November 24, 2012 W. Erwin Diewer 1 and Emily Yu, 2 Discussion Paper 12-04, Deparmen of Economics, Universiy of Briish Columbia, Vancouver, Canada, V6T 1Z1. Email: diewer@econ.ubc.ca Absrac Using new daa from Saisics Canada, he paper shows ha he produciviy performance of he business secor of he Canadian economy has been reasonably saisfacory over he pas 51 years. In paricular, radiional gross income Toal Facor Produciviy (TFP) growh averaged 1.026 percenage poins per year over he period 1961-2011. The focus of he sudy is on he real income generaed by he business secor of he Canadian economy. The growh of qualiy adjused labour inpu growh was he main driver of growh in real income followed by TFP growh, followed by growh in capial inpu and hen by falling real impor prices. However, in recen years, he conribuion of falling real impor prices urned ou o be more han wice as imporan as capial deepening. The sudy encounered many daa problems which should be addressed in fuure work on Canadian business secor produciviy performance. Journal of Economic Lieraure Classificaion Numbers C43, C67, C82, D24, E22, E43. Keywords Toal Facor Produciviy, Mulifacor Produciviy, real income, erms of rade effecs, measuremen of capial, measuremen of invenory change, user coss, real ineres raes. 1 Deparmen of Economics, Universiy of Briish Columbia and he School of Economics, Universiy of New Souh Wales. The financial assisance of he SSHRC is graefully acknowledged. The firs auhor also hanks Shuao Cao, Serge Coulombe, Wulong Gu, Ulrich Kohli, Sharon Kozicki, Danny Leung, Alice Nakamura, Andrew Sharpe and Jianmin Tang for helpful commens. None of he above are responsible for any views expressed in his paper. 2 Deparmen of Foreign Affairs and Inernaional Trade, Governmen of Canada
2 1. Inroducion Many observers have noed ha an improvemen in a counry s erms of rade has effecs ha are similar o an improvemen in a counry s produciviy growh. However, i is no sraighforward o work ou he exac magniude of each source of gain. Diewer (1983), Diewer and Morrison (1986), Diewer, Mizobuchi and Nomura (2005), Diewer and Lawrence (2006), Morrison and Diewer (1990) and Kohli (1990) (2003) (2004) (2006) developed producion heory mehodologies which enable one o obain index number esimaes of he conribuion of each ype of gain. In Appendix 1 below, we ouline he Diewer, Mizobuchi and Nomura (2005) and Diewer and Lawrence (2006) mehodology and in secions 2-4 of he main ex, we apply his mehodology o he business secor of he Canadian economy over he years 1961-2011. Appendix 2 below describes how he Canadian business secor daa were developed from Saisics Canada sources. Secion 2 of he main ex aggregaes up he daa from Appendix 2 and develops convenional measures of Canadian business secor Toal Facor Produciviy for he years 1961-2011. Produciviy growh, while perhaps he mos imporan source of growh in living sandards, is no he enire sory. If a counry s expor prices increase more rapidly han is impor prices, hen i is well known ha his has an effec ha is similar o a produciviy improvemen. Thus in secion 3, we measure he relaive conribuions of produciviy improvemens, changes in real expor and impor prices and he growh of labour and capial inpu o he growh of (gross) real income generaed by he business secor in Canada using he mehodology explained in Appendix 1. Secion 4 compares our esimaes of TFP growh wih he business secor Mulifacor Produciviy Growh esimaes recenly developed by he Saisics Canada KLEMS program; see Baldwin, Gu and Yan (2007) for a descripion of he mehodology used in he KLEMS program. I should be noed ha he Saisics Canada KLEMS program uses deailed indusry daa in order o consruc TFP esimaes by indusry and hen hese indusry esimaes are aggregaed up o give aggregae business secor esimaes of TFP growh, whereas our approach uses aggregae esimaes for he oupus produced and inpus used for he enire business secor. Thus our esimaes may suffer from some aggregaion bias. Secion 5 concludes. 2. Oupu and Inpu Aggregaes and Convenional Produciviy Growh for Canada In Appendix 2, we consruced price and quaniy series for 22 ne oupus, 12 ypes of labour inpu and 17 ypes of capial inpu for he business secor of he Canadian economy for he years 1961-2011. The 22 ne oupus are: Q 1 : Domesic consumpion (excluding marke residenial rens and he services of owner occupied housing);
3 Q 2 : Real sales of goods and services by he business secor o he nonmarke secor less real sales of goods and services from he nonmarke secor o he business secor; Q 3 : Governmen invesmen; Q 4 : Business secor invesmen in residenial srucures; Q 5 : Business secor invesmen in machinery and equipmen; Q 6 : Business secor invesmen in nonresidenial srucures; Q 7 : Invenory change; Q 8 : Expors of agriculural and fish producs; Q 9 : Expors of energy producs; Q 10 : Expors of fores producs; Q 11 : Expors of indusrial goods and maerials (excluding energy and fores produc expors); Q 12 : Expors of machinery and equipmen (excluding auomoive producs); Q 13 : Expors of auomoive producs; Q 14 : Expors of oher consumer goods (excluding auomoive producs); Q 15 : Expors of services; Q 16 : Impors of agriculural and fish producs; Q 17 : Impors of energy producs; Q 18 : Impors of indusrial goods and maerials (including impors of fores producs bu excluding impors of energy producs); Q 19 : Impors of machinery and equipmen (excluding auomoive producs); Q 20 : Impors of auomoive producs; Q 21 : Impors of oher consumer goods and Q 22 : Impors of services. The price indexes ha correspond o he above quaniy indexes Q n are denoed as P n for n = 1,...,22 and = 1961,...,2011 and hey are lised in Appendix 2. We define he price of our consumpion aggregae as P C P 1. We form a domesic oupu aggregae Q D wih corresponding price P D by aggregaing Q 1 -Q 7. 3 Similarly, we form an expor aggregae Q X wih corresponding price P X by aggregaing Q 8 -Q 15 and an impor aggregae Q M wih corresponding price P M by aggregaing Q 16 -Q 22. 4 Once hese indexes have been consruced, a business secor aggregae oupu or real value added index Q Y is consruced as an aggregae of Q D, Q X and Q M. The corresponding aggregae oupu price index is P Y. 5 The price indexes P C, P D, P X, P M and P Y are lised in Table 1 below and he corresponding quaniy indexes Q D, Q X, Q M and Q Y are lised in Table 2 below. Saisics Canada has consruced deailed labour inpu daa for he Canadian business secor for 36 ypes of labour for he years 1961-2010 in CANSIM Table 3830024 which 3 P D is he Törnqvis price index of P 1 -P 7 and Q D is he corresponding implici quaniy index. 4 P X and P M are consruced as Törnqvis price indexes and Q X and Q M are he corresponding implici quaniy indexes. 5 P Y is a Törnqvis price aggregae of P D,P X,P M (wih corresponding quaniies Q D,Q X, Q M ) and Q Y is he implici quaniy index ha maches up wih P Y.
4 we will make use of in his sudy. Labour inpu is classified according o a four way classificaion in Table 3830024: By educaion level E. There are 3 caegories in his classificaion: E=1 corresponds o Primary or Secondary Educaion; E=2 corresponds o Some or Compleed Pos-Secondary Educaion and E=3 corresponds o Universiy Degrees or Above. By age of worker A. There are 3 caegories in his classificaion: A=1 corresponds o 15-34 years old; A=2 corresponds o 35-54 years old and A=3 corresponds o 55 years old and over. By sex S. There are 2 caegories in his classificaion: S=1 corresponds o a male worker and S=2 corresponds o a female worker. By ype of employmen T. There are 2 caegories in his classificaion: T=1 corresponds o a paid worker and T=2 corresponds o a self employed worker. Thus Table 3830024 provides annual hours and oal compensaion daa for 3x3x2x2 or 36 ypes of worker in he Canadian business secor for he years 1961-2010. We aggregaed over he age groups using Fisher chained indexes in order o form 12 price and quaniy series for labour, P L1 -P L12 and Q L1 -Q L12. These series were exended o 2011 using various Saisics Canada series as is explained in Appendix 2. These 12 price and quaniy series for he various ypes of labour were aggregaed ino aggregae qualiy adjused business secor labour inpu Q L wih corresponding price index P L. 6 P L is lised in Table 1 and Q L is lised in Table 2. Using informaion on business secor capial socks in CANSIM Table 310003, In Appendix 2, we were able o form esimaes for business secor beginning of he year capial socks for he following 14 ypes of reproducible capial asse: Q K1 : Office furniure; Q K2 : Agriculural machinery; Q K3 : Indusrial machinery; Q K4 : Auomobiles; Q K5 : Trucks; Q K6 : Oher ranspor equipmen; Q K7 : Oher machinery and equipmen; Q K8 : Compuers; Q K9 : Telecommunicaions equipmen; Q K10 : Sofware; Q K11 : Indusrial buildings; Q K12 : Commercial buildings; Q K13 : Insiuional buildings; Q K14 : Engineering consrucion. 6 Q L is now a direc Törnqvis quaniy aggregae of Q L1 -Q L12 wih P L defined as he corresponding implici price index. These index number convenions are necessary in order o apply he ranslog mehodology explained in Appendix 1.
5 Using Saisics Canada Balance Shee informaion (and oher sources), we were able o consruc business secor beginning of he year capial sock inpus for invenories (Q K15 ), agriculural land (Q K16 ) and business nonagriculural land (Q K17 ). We also consruced esimaes for he corresponding sock prices, P Kn, for n = 1,...,17 and = 1961-2011; see Appendix 2. As is explained in Appendix 2, user cos prices U n for he 17 capial sock inpus were consruced, using balancing or endogenous real raes of reurn ha made he value of ne oupu produced by he business secor equal o he value of primary inpus used by he business secor. 7 There is a problem wih our capial inpu daa in ha he sofware series sars only in 1981. Our ranslog mehodology does no work when an inpu is equal o 0 in one period and posiive in a subsequen period. Thus we aggregaed he sofware asse wih he compuer asse; i.e., we consruced a Fisher capial services aggregae 8 of (U 8,U 10 ) and (Q K8,Q K10 ) o replace he individual services for hese wo asses. We hen consruced a business secor capial services aggregae Q K by aggregaing he 16 ypes of capial services using direc Törnqvis quaniy aggregaion. The corresponding capial services aggregae price is denoed as P K and is lised in Table 1 while Q K is lised in Table 2 below. Once he labour and capial aggregaes have been consruced, we can consruc a direc Törnqvis quaniy inpu aggregae of Q L and Q K which we denoe by Q Z, which is lised in Table 2. The corresponding implici aggregae inpu price index, P Z, is lised in Table 1. Table 1: Prices of Canadian Business Secor Oupu and Inpu Aggregaes Year P C P D P X P M P L P K P Y P Z 1961 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1962 1.00617 1.00659 1.02992 1.05787 1.03794 1.03913 0.99856 1.03835 7 User coss for capial inpus are mean o approximae wha i would cos a business o ren or lease he services of he asse for he accouning period under consideraion. The use of user coss in mulifacor produciviy sudies daes back o he pioneering work of Jorgenson and Griliches (1967). Basically, a user cos consiss of he sum of four erms: (1) he ineres ha could be earned if he asse were simply sold a he beginning of he period,; (2) depreciaion; (3) axes ha are assessed on he use of he asse plus he appropriae business income ax rae and (4) expeced capial gains (or minus losses) ha he asse migh accrue over he accouning period. Wih respec o (1), we chose he ineres rae o be he balancing rae of reurn ha makes he value of inpus equal o he value of oupus; i.e., we chose an endogenous rae of reurn raher han an exogenous one. Wih respec o (4), we chose o value beginning and end of period capial socks a he average invesmen prices of he period, which eliminaed he capial gains erm. There are problems associaed wih he esimaion of expeced capial gains and so our sraegy avoids hese problems. Jorgenson (1989) and his coworkers esimae expeced capial gains (or losses) by acual gains (of losses). This sraegy ends o lead o negaive user coss for land asses and hugely posiive user coss for compuers (when saisical agencies assign large depreciaion raes o compuers). Saisics Canada uses he Jorgenson mehodology. For furher discussion on problems wih consrucing user coss, see Harper, Bernd and Wood (1980), Diewer (1980) (2005a), Schreyer (2009) and Inklaar (2010). 8 Fisher (1922) aggregaion can deal wih 0 quaniies; see Diewer (1980; 498-501).
6 1963 1.01956 1.02135 1.04054 1.09648 1.07171 1.15465 1.00652 1.09996 1964 1.02317 1.03169 1.05692 1.10526 1.11443 1.21329 1.01867 1.14810 1965 1.03598 1.05587 1.07980 1.10214 1.18778 1.26095 1.04940 1.21265 1966 1.07430 1.09618 1.12451 1.11930 1.26637 1.34035 1.09696 1.29150 1967 1.10738 1.12882 1.15421 1.14426 1.34823 1.26412 1.13097 1.31788 1968 1.14786 1.16368 1.20119 1.16726 1.43529 1.33957 1.17273 1.40076 1969 1.18479 1.20467 1.23088 1.19648 1.54823 1.36588 1.21411 1.48226 1970 1.21483 1.24199 1.26710 1.21965 1.64546 1.40943 1.25562 1.55976 1971 1.24210 1.28773 1.28552 1.24798 1.76322 1.45186 1.29829 1.64947 1972 1.29301 1.34785 1.33325 1.27498 1.91504 1.53498 1.36563 1.77569 1973 1.38394 1.45887 1.51489 1.35954 2.09632 2.01445 1.50883 2.06965 1974 1.58215 1.67355 1.91283 1.64641 2.42435 2.40403 1.75214 2.42165 1975 1.81969 1.89101 2.16694 1.89029 2.80455 2.20560 1.96977 2.57725 1976 1.90416 1.99827 2.29702 1.92853 3.22888 2.38963 2.11056 2.90675 1977 2.02765 2.12535 2.50231 2.17241 3.54148 2.71724 2.21606 3.22786 1978 2.19006 2.29116 2.73837 2.41667 3.71108 3.05188 2.37354 3.46737 1979 2.40319 2.51056 3.20786 2.73027 3.97716 3.65969 2.63294 3.87685 1980 2.69102 2.79419 3.73464 2.97957 4.38358 3.79070 3.00323 4.17210 1981 2.89817 3.05927 3.99821 3.26618 4.92831 3.71089 3.25853 4.45740 1982 3.16581 3.31615 4.08926 3.43918 5.46977 3.46038 3.49392 4.65741 1983 3.40715 3.50995 4.15051 3.42324 5.67612 4.30538 3.72144 5.15751 1984 3.56365 3.64735 4.29656 3.58225 5.97769 4.82321 3.85122 5.56225 1985 3.67559 3.75645 4.38071 3.67711 6.29468 5.09990 3.95557 5.86656 1986 3.75577 3.84444 4.37060 3.74437 6.48667 4.99177 4.01524 5.92882 1987 3.85242 3.95329 4.45792 3.69150 6.72738 5.59267 4.18608 6.33075 1988 3.95781 4.06089 4.47080 3.60108 7.19929 5.58832 4.34753 6.60219 1989 4.07115 4.17642 4.56005 3.59364 7.54058 5.46841 4.51068 6.74673 1990 4.30215 4.33491 4.52868 3.64367 7.85340 5.34227 4.64745 6.86966 1991 4.53970 4.45950 4.37107 3.57992 8.22512 4.63500 4.75245 6.75605 1992 4.59854 4.50278 4.49573 3.72567 8.41018 5.11800 4.77305 7.08515 1993 4.68858 4.58490 4.69389 3.92460 8.40036 5.29335 4.83888 7.16161 1994 4.71799 4.65944 4.97322 4.16089 8.33127 6.11925 4.91530 7.50346 1995 4.73527 4.69157 5.29132 4.27688 8.49758 6.54938 5.04377 7.79354 1996 4.83325 4.74750 5.32097 4.22185 8.61170 6.88983 5.15196 8.01251 1997 4.91285 4.80627 5.32718 4.23677 8.91603 6.78040 5.20713 8.13610 1998 4.97834 4.87196 5.31558 4.37960 9.19622 6.68674 5.17039 8.25245 1999 5.06934 4.93553 5.3787 4.36044 9.43856 7.13227 5.28780 8.59284 2000 5.20684 5.04961 5.71039 4.44227 9.91534 8.06215 5.55310 9.28700 2001 5.36470 5.16717 5.80311 4.58416 10.20478 7.97327 5.63050 9.40991 2002 5.43364 5.24828 5.68895 4.61494 10.37528 8.59389 5.62481 9.78947 2003 5.57127 5.32455 5.64768 4.31493 10.58453 8.39331 5.88407 9.81693 2004 5.65242 5.41524 5.78629 4.20643 10.89676 9.24512 6.13937 10.38008 2005 5.77665 5.53128 5.95233 4.15583 11.37321 9.79203 6.40068 10.89866 2006 5.87995 5.66176 5.97500 4.11704 11.91346 9.77832 6.59048 11.19634 2007 5.98858 5.79781 6.03062 4.01439 12.30606 10.05555 6.86085 11.54442 2008 6.15649 5.97473 6.64397 4.24350 12.62162 10.72831 7.21870 12.03461 2009 6.18318 6.04400 5.99089 4.28278 12.84741 8.71005 6.93473 11.19818 2010 6.25491 6.09382 6.12294 4.10323 13.03350 9.76371 7.20209 11.80370 2011 6.39168 6.21545 6.55859 4.17485 13.43103 10.82140 7.51572 12.52343 Noe ha we have also lised he price of our household consumpion aggregae, P C, in Table 1, which will play a role in subsequen secions. The (oal facor or mulifacor) produciviy level in year of he Canadian business secor T can be defined as he aggregae year oupu, Q Y divided by aggregae year inpu, Q Z : 9 (1) T Q Y /Q Z ; = 1961,..., 2011. Toal Facor Produciviy (TFP) growh for year, τ, is defined as he produciviy level in year divided by he previous year s produciviy level: 9 See definiion (34) in Appendix 1.
7 (2) τ T /T 1 ; = 1962,..., 2011. Table 2 liss he quaniies ha mach up o he prices in Table 1 and i also liss produciviy levels and growh raes. Table 2: Quaniies of Canadian Business Secor Oupu and Inpu Aggregaes, TFP Levels and TFP Growh Raes Year Q D Q X Q M Q L Q K Q Y Q Z T 1961 30398 6867 7897 19240 10128 29368 29368 1.00000 0 1962 32414 7195 8033 20049 10326 31585 30375 1.03984 1.03984 1963 34157 7832 8031 20506 10613 34008 31120 1.09283 1.05096 1964 36431 9105 8989 21372 11091 36591 32466 1.12706 1.03132 1965 40024 9418 10180 22321 11655 39269 33983 1.15556 1.02529 1966 43167 10696 11579 23452 12450 42286 35917 1.17734 1.01885 1967 43510 11827 12306 23822 13105 43046 36941 1.16526 0.98974 1968 45235 12910 13527 23864 13515 44645 37378 1.19445 1.02504 1969 48343 13802 15377 24366 13986 46806 38338 1.22087 1.02212 1970 48289 15211 15293 24395 14513 48260 38850 1.24222 1.01749 1971 50936 15929 16480 24836 14953 50452 39711 1.27050 1.02276 1972 54541 17257 18892 25469 15415 53041 40792 1.30027 1.02343 1973 61382 19008 21754 26868 16106 58832 42891 1.37169 1.05492 1974 67244 18347 23977 27717 17037 61727 44662 1.38211 1.00760 1975 65767 16951 23228 27534 18122 59494 45471 1.30840 0.94667 1976 69516 18390 24774 27417 18769 63195 45885 1.37724 1.05262 1977 72993 19678 24836 27616 19366 67878 46601 1.45657 1.05760 1978 74955 21544 26197 28636 20037 70536 48284 1.46085 1.00293 1979 80182 22467 28092 30208 20912 74698 50730 1.47244 1.00794 1980 79002 22548 28715 31015 22012 73053 52586 1.38920 0.94347 1981 82000 23012 30716 31669 23302 74433 54414 1.36792 0.98468 1982 72384 22882 25710 29737 23850 70175 52644 1.33300 0.97448 1983 76539 24326 28444 29747 24016 73155 52786 1.38589 1.03967 1984 81657 28444 33270 30714 24312 78122 54090 1.44428 1.04213 1985 87008 29938 35548 31892 24809 82738 55787 1.48311 1.02689 1986 90012 31456 37965 33124 25343 85019 57578 1.47658 0.99559 1987 96002 32933 39889 34682 26064 90559 59880 1.51234 1.02422 1988 102460 35371 45163 36105 27136 94670 62340 1.51861 1.00415 1989 106238 35434 47820 36972 28278 96089 64243 1.49572 0.98493 1990 104078 37556 48551 36814 29056 95610 64682 1.47816 0.98826 1991 98192 38167 49281 35445 29504 90121 63394 1.42159 0.96173 1992 100685 40921 51473 35000 29544 93349 62887 1.48441 1.04418 1993 100614 45382 55461 35683 29642 94373 63765 1.48001 0.99704 1994 105514 51076 60606 37145 30070 100395 65766 1.52655 1.03145 1995 107894 55452 64385 38163 30529 103938 67266 1.54518 1.01220 1996 110521 58646 67340 39243 31132 107231 68949 1.55523 1.00651 1997 118530 63457 77378 40501 32269 111367 71275 1.56249 1.00467 1998 122860 69086 81755 41680 33566 117544 73645 1.59610 1.02151 1999 127598 76337 88261 43103 34865 123965 76284 1.62503 1.01813 2000 134789 83350 95661 44563 35944 131753 78781 1.67240 1.02915 2001 135351 80654 90649 45096 36583 133537 79903 1.67124 0.99931 2002 143444 81599 92347 45811 36720 140604 80788 1.74041 1.04139 2003 145573 79268 96341 46610 37380 137165 82214 1.66839 0.95862 2004 154248 83281 104558 48181 38111 142907 84524 1.69074 1.01339 2005 163288 84847 112552 48777 39392 146935 86293 1.70274 1.00710 2006 171384 85213 118273 49653 41010 150603 88649 1.69887 0.99773 2007 178411 86367 125533 50817 42360 153232 91066 1.68265 0.99046 2008 184343 82650 126364 51240 43583 154363 92591 1.66714 0.99078 2009 172892 71414 108643 49049 43323 145283 89970 1.61480 0.96860 τ
8 2010 183521 76559 123691 50315 43405 149898 91461 1.63893 1.01494 2011 191904 80232 132890 51312 43896 154899 92960 1.66630 1.01670 Our geomeric average rae of TFP growh over he 50 years 1962-2011 is 1.026% per year, 10 which can also be compared wih Saisics Canada s recen KLEMS program average Mulifacor Produciviy Growh over he same years of 0.276% per year, 11 which is a raher subsanial difference! In secion 4 below, we aemp o deermine why our resuls are so differen from he official Saisics Canada resuls. 12 Over he golden years 1962-1973, TFP growh 13 averaged 2.67% per year; over he dismal years, 1974-1991, TFP growh averaged on 0.20% per year bu over he remainder of he nineies, 1992-1999, TFP growh nicely recovered o average a very respecable 1.69% per year. During he naughs, 2000-2011, TFP growh again fell off o average only 0.21% per year. However, produciviy growh is no necessarily he enire sory behind he growh in living sandards: if he price of Canadian expors increases more rapidly han he price of Canadian impors, hen he real income generaed by he business secor should increase. This erms of rade effec is no aken ino accoun in he above produciviy compuaions. Thus in he following secion, we implemen he ranslog real income mehodology explained in secions 1-4 of Appendix 1 below and his approach will enable us o assess he conribuion o Canadian living sandards of improvemens in Canada s erms of rade. 3. Explaining Real Income Growh Generaed by he Canadian Business Secor: he Gross Oupu Approach The basic mehodology used in his secion can easily be explained in nonechnical erms. The business secor faces (exogenous) domesic and inernaional prices for he ne oupus i produces: domesic oupus, expors and (minus) impors. The business secor also uilizes inpus of labour and capial in order o produce is oupus. The value of oupus produced by he business secor less he value of impors used (value added) mus evenually flow back o he labour and capial primary inpus ha were used o produce 10 This rae of TFP growh can be compared o he average rae of produciviy growh for Ausralia obained by Diewer and Lawrence (2006) using a similar mehodology and over a similar period. The Diewer and Lawrence marke secor average rae of TFP growh for Ausralia over he period 1961-2004 was 1.49% per year. However, here is an upward bias in he Diewer and Lawrence resuls due o he fac ha hey essenially used hours worked as heir measure of labour inpu insead of a qualiy adjused measure of labour inpu for Ausralia (which was no available). 11 See CANSIM Table 3830021, Series V41712881. Comparing levels of TFP wih he saring level being 1 in 1961, our TFP ended up a 1.6663 in 2011 whereas KLEMS Mulifacor Produciviy ended up a 1.1477 in 2011. 12 Our measures of business secor oupu and capial inpu were differen from he KLEMS measures because we excluded renal housing from our measure of value added and we excluded he residenial land and residenial srucures inpus from our measure of capial services, whereas he KLEMS measures included renal housing in heir oupu and capial inpu measures. 13 All growh raes in his paragraph are average geomeric growh raes over he period under consideraion. The average growh raes in Table 4 are arihmeic ones (and hence are slighly higher).
9 value added. This is he (gross) income generaed by he business secor. We divide his gross income in year by he price of consumpion in year, P C, in order o urn his nominal income ino real income ρ ; his real income is he number of consumpion bundles ha could be purchased by he owners of he labour and capial inpus ha were used in year by he Canadian business secor. We also divide each of he prices P D, P X, P M, P L and P K by he price of consumpion, P C, in order o form he corresponding real oupu and inpu prices facing he Canadian business secor in each year. Our measure of he (gross) real income generaed by he business secor ρ and he corresponding real oupu and inpu prices are lised in Table 3. Table 3: Gross Real Income Generaed by he Canadian Business Secor and Real Oupu and Inpu Prices Year ρ P D /P C P X /P C P M /P C P L /P C P K /P C 1961 29368 1.00000 1.00000 1.00000 1.00000 1.00000 1962 31346 1.00042 1.02360 1.05138 1.03157 1.03276 1963 33574 1.00176 1.02058 1.07544 1.05115 1.13250 1964 36430 1.00833 1.03299 1.08023 1.08919 1.18581 1965 39778 1.01920 1.04230 1.06386 1.14653 1.21715 1966 43178 1.02036 1.04674 1.04189 1.17879 1.24765 1967 43963 1.01936 1.04229 1.03330 1.21750 1.14154 1968 45613 1.01378 1.04646 1.01690 1.25040 1.16701 1969 47964 1.01678 1.03890 1.00987 1.30676 1.15285 1970 49880 1.02235 1.04303 1.00397 1.35448 1.16019 1971 52734 1.03673 1.03496 1.00473 1.41955 1.16888 1972 56020 1.04241 1.03112 0.98606 1.48107 1.18714 1973 64142 1.05415 1.09462 0.98237 1.51475 1.45559 1974 68360 1.05777 1.20901 1.04062 1.53231 1.51947 1975 64401 1.03919 1.19083 1.03880 1.54122 1.21208 1976 70045 1.04943 1.20632 1.01280 1.69570 1.25495 1977 74186 1.04818 1.23409 1.07139 1.74659 1.34009 1978 76445 1.04616 1.25036 1.10347 1.69451 1.39352 1979 81839 1.04468 1.33483 1.13610 1.65495 1.52285 1980 81529 1.03834 1.38782 1.10723 1.62897 1.40865 1981 83688 1.05559 1.37956 1.12698 1.70049 1.28043 1982 77448 1.04749 1.29169 1.08635 1.72776 1.09305 1983 79904 1.03017 1.21818 1.00472 1.66594 1.26363 1984 84425 1.02349 1.20566 1.00522 1.67741 1.35345 1985 89040 1.02200 1.19184 1.00041 1.71256 1.38750 1986 90893 1.02361 1.16370 0.99696 1.72712 1.32909 1987 98402 1.02618 1.15717 0.95823 1.74627 1.45173 1988 103992 1.02604 1.12961 0.90987 1.81901 1.41197 1989 106463 1.02586 1.12009 0.88271 1.85220 1.34321 1990 103284 1.00761 1.05266 0.84694 1.82546 1.24177 1991 94344 0.98233 0.96285 0.78858 1.81182 1.02099 1992 96892 0.97918 0.97764 0.81019 1.82888 1.11296 1993 97398 0.97789 1.00113 0.83706 1.79166 1.12899 1994 104594 0.98759 1.05410 0.88192 1.76585 1.29700 1995 110709 0.99077 1.11743 0.90320 1.79453 1.38311 1996 114302 0.98226 1.10091 0.87350 1.78176 1.42551 1997 118038 0.97831 1.08434 0.86239 1.81484 1.38014 1998 122079 0.97863 1.06774 0.87973 1.84725 1.34317 1999 129307 0.97360 1.06103 0.86016 1.86189 1.40694 2000 140515 0.96980 1.09671 0.85316 1.90429 1.54838 2001 140153 0.96318 1.08172 0.85450 1.90221 1.48625 2002 145551 0.96589 1.04699 0.84933 1.90945 1.58161 2003 144866 0.95572 1.01372 0.77450 1.89984 1.50654 2004 155219 0.95804 1.02368 0.74418 1.92780 1.63560 2005 162807 0.95752 1.03041 0.71942 1.96882 1.69510 2006 168802 0.96289 1.01617 0.70018 2.02612 1.66299 2007 175551 0.96815 1.00702 0.67034 2.05492 1.67912
10 2008 180996 0.97048 1.07918 0.68927 2.05013 1.74260 2009 162942 0.97749 0.96890 0.69265 2.07780 1.40867 2010 172597 0.97425 0.97890 0.65600 2.08372 1.56097 2011 182140 0.97243 1.02611 0.65317 2.10133 1.69304 Thus he gross real income generaed by he Canadian business secor has grown from $29,368 million dollars worh of 1961 consumpion bundles in 1961 o $182,140 million in 2011, a 6.20 fold increase. Looking a he change in real inpu and oupu prices, he real price of domesic oupu has fallen o 0.972 imes he saring level (due o he fac ha machinery and equipmen prices have risen less rapidly han he price of consumpion) and he real price of expors has risen slighly o 1.026 imes he saring level. However, he real price of impors has fallen subsanially o 0.653 imes he saring level. The qualiy adjused real wages of business secor workers have risen o 2.101 imes heir iniial 1961 levels. The real price of capial services has risen 1.69 fold, reflecing rapidly rising prices of agriculural land and nonagriculural business land as well as upward rends in machinery and equipmen depreciaion raes and in real raes of reurn; see Appendix 2 for deails. Noe ha real wages, P L /P C, peaked around 1977 a 1.75 and hen fell o 1.67 in 1983. They increased o 1.85 in 1989 and hen fell o 1.77 in 1994 and hen increased seadily o 2.10 in 2011. Real domesic prices, P D /P C, increased o 1.06 in 1974 and hen dropped o 0.97 a he end of he sample period. This drop is probably due o he adven of qualiy adjusmen of compuers in he 1980s. The real price of expors, P X /P C, flucuaes bu ends up close o uniy a he end of he sample period. The real price of impors, P M /P C, drops subsanially over he sample period, ending up a 0.63. The real price of business secor capial services, P K /P C, increases o 1.52 in 1979 and hen decreases o 1.09 in 1982. I says in he range 1.00 o 1.75 for he res of he sample period, wih big drops during recession years, which were in 1982, 1991 and 2009. This is due o he falling balancing real rae of reurn for hose years. There are six quaniaive facors ha can be used o explain he real income ρ generaed by he business secor in year : The price of domesic producion (an aggregae of C+I+G) relaive o he price of consumpion in year, P D /P C ; The price of expors relaive o he price of consumpion in year, P X /P C ; The price of impors relaive o he price of consumpion in year, P M /P C ; The quaniy of labour used by he business secor in year, Q L ; The quaniy of capial used by he business secor in year, Q K and The level of echnology of he business secor in year. The formal model oulined in Appendix 1, based on he work of Diewer and Morrison (1986) and Kohli (1990), allows us o decompose he growh of real income from year 1 o, ρ /ρ 1, ino muliplicaive year o year conribuion facors α D, α X, α M, β L, β K and τ ha describe he effecs of changes in he six explanaory variables lised above going from year 1 o. The model oulined in Appendix 1 leads o he following equaion which decomposes he year o year growh in real income generaed by he
11 business secor, ρ /ρ 1, ino a produc of six year o year explanaory conribuion facors: 14 (3) ρ /ρ 1 = τ α D α X α M β L β K ; = 1962, 1963,...,2011. Thus if α D is greaer han one, his means ha he domesic price of oupu grew faser han he price of consumpion going from year 1 o and α D measures he conribuion of rising real domesic oupu prices o he growh in real income. Similarly, if α X is greaer han one, his means ha Canadian expor prices grew faser han he price of consumpion going from year 1 o and α X measures he conribuion of rising real expor prices o he growh in real income generaed by he Canadian business secor. However, if α M is greaer han one, his means ha Canadian impor prices did no increase as quickly as he price of consumpion going from year 1 o and α M measures he conribuion of falling real impor prices o he growh in real income generaed by he Canadian business secor. If β L is greaer han one, hen business secor labour inpu increased going from year 1 o and β L measures he conribuion of he increase in labour inpu o he growh in real income generaed by he Canadian business secor. Similarly, if β K is greaer han one, hen business secor capial services inpu increased going from year 1 o and β K measures he conribuion of he increase in capial inpu o he growh in real income generaed by he Canadian business secor. Finally, if τ is greaer han one, hen he efficiency of he Canadian business secor increased from year 1 o and τ measures he conribuion of he efficiency increase o he growh in real income generaed by he Canadian business secor. These year o year conribuion facors are lised in Table 4 along wih he (arihmeic) averages of hese conribuion facors over various ime periods in he las five rows of he Table. 15 Table 4: Business Secor Year o Year Growh in Real Income and Year o Year Conribuion Facors α X Year ρ /ρ 1 τ α D 1962 1.06736 1.03984 1.00043 1.00548 0.9866 1.02745 1.00666 0.99201 1963 1.07105 1.05096 1.00138 0.99930 0.99406 1.01476 1.00961 0.99336 1964 1.08508 1.03132 1.00665 1.00300 0.99884 1.02686 1.01597 1.00184 1965 1.09191 1.02529 1.01096 1.00227 1.00412 1.02826 1.01797 1.00640 1966 1.08547 1.01885 1.00117 1.00108 1.00577 1.03221 1.02393 1.00686 1967 1.01818 0.98974 0.99900 0.99885 1.00235 1.01023 1.01810 1.00120 1968 1.03752 1.02504 0.99449 1.00115 1.00474 1.00118 1.01062 1.00590 1969 1.05155 1.02212 1.00300 0.99785 1.00217 1.01381 1.01173 1.00001 1970 1.03995 1.01749 1.00552 1.00122 1.00185 1.00078 1.01254 1.00308 1971 1.05722 1.02276 1.01400 0.99755 0.99976 1.01200 1.01004 0.99732 1972 1.06231 1.02343 1.00552 0.99883 1.00608 1.01701 1.01006 1.00491 1973 1.14497 1.05492 1.01139 1.01937 1.00125 1.03560 1.01529 1.02064 1974 1.06576 1.00760 1.00352 1.03277 0.98009 1.01973 1.02114 1.01221 1975 0.94209 0.94667 0.98156 0.99518 1.00065 0.99575 1.02246 0.99582 1976 1.08764 1.05262 1.01035 1.00408 1.00933 0.99720 1.01194 1.01345 α M β L β K α XM 14 See he equaions in Appendix 1 in order o derive his equaion. All of he variables in equaion (3) can be idenified using he daa in Appendix 2. 15 The fifh row from he boom gives he average over he years 1962-2011 and he remaining rows give he averages over he years 1962-1973, 1974-1991, 1992-1999 and 2000-2011. Noe ha he produciviy growh raes τ lised in Table 4 agree wih hose lised in Table 2.
12 1977 1.05911 1.05760 0.99877 1.00736 0.98004 1.00475 1.01081 0.98725 1978 1.03046 1.00293 0.99802 1.00446 0.98919 1.02357 1.01225 0.99360 1979 1.07055 1.00794 0.99855 1.02377 0.98887 1.03386 1.01625 1.01238 1980 0.99621 0.94347 0.99384 1.01471 1.01009 1.01634 1.01992 1.02495 1981 1.02649 0.98468 1.01695 0.99773 0.99292 1.01327 1.02120 0.99066 1982 0.92544 0.97448 0.99228 0.97527 1.01432 0.95971 1.00810 0.98923 1983 1.03170 1.03967 0.98375 0.97819 1.02845 1.00020 1.00248 1.00602 1984 1.05659 1.04213 0.99359 0.99600 0.99981 1.01989 1.00472 0.99581 1985 1.05466 1.02689 0.99855 0.99536 1.00191 1.02329 1.00789 0.99726 1986 1.02080 0.99559 1.00158 0.99045 1.00141 1.02383 1.00810 0.99184 1987 1.08262 1.02422 1.00254 0.99778 1.01608 1.02902 1.01064 1.01382 1988 1.05681 1.00415 0.99986 0.99074 1.02050 1.02540 1.01530 1.01105 1989 1.02377 0.98493 0.99982 0.99680 1.01207 1.01523 1.01506 1.00883 1990 0.97014 0.98826 0.98187 0.97682 1.01657 0.99724 1.00963 0.99300 1991 0.91344 0.96173 0.97444 0.96615 1.02934 0.97509 1.00513 0.99450 1992 1.02700 1.04418 0.99672 1.00613 0.98868 0.99155 1.00045 0.99475 1993 1.00522 0.99704 0.99867 1.01049 0.98531 1.01282 1.00113 0.99565 1994 1.07388 1.03145 1.00996 1.02561 0.97455 1.02610 1.00515 0.99951 1995 1.05846 1.01220 1.00316 1.03184 0.98772 1.01698 1.00572 1.01917 1996 1.03245 1.00651 0.99177 0.99166 1.01753 1.01733 1.00756 1.00905 1997 1.03269 1.00467 0.99611 0.99133 1.00694 1.01966 1.01382 0.99821 1998 1.03423 1.02151 1.00033 0.99089 0.98857 1.01815 1.01482 0.97956 1999 1.05921 1.01813 0.99500 0.99613 1.01332 1.02123 1.01431 1.00939 2000 1.08668 1.02915 0.99631 1.02134 1.00478 1.02060 1.01189 1.02623 2001 0.99742 0.99931 0.99365 0.99128 0.99911 1.00725 1.00693 0.99040 2002 1.03852 1.04139 1.00264 0.98046 1.00332 1.00959 1.00148 0.98371 2003 0.99529 0.95862 0.98993 0.98173 1.04980 1.01054 1.00703 1.03063 2004 1.07147 1.01339 1.00232 1.00542 1.02050 1.02025 1.00769 1.02602 2005 1.04889 1.00710 0.99949 1.00356 1.01704 1.00733 1.01351 1.02067 2006 1.03682 0.99773 1.00543 0.99272 1.01348 1.01061 1.01651 1.00610 2007 1.03998 0.99046 1.00535 0.99545 1.02135 1.01389 1.01319 1.01670 2008 1.03101 0.99078 1.00237 1.03479 0.98671 1.00488 1.01181 1.02104 2009 0.90025 0.96860 1.00732 0.95175 0.99770 0.97400 0.99763 0.94956 2010 1.05925 1.01494 0.99656 1.00442 1.02565 1.01583 1.00073 1.03019 2011 1.05529 1.01670 0.99808 1.02109 1.00205 1.01183 1.00451 1.02318 A62-11 1.03820 1.01060 0.99949 0.99995 1.00410 1.01250 1.01080 1.00390 A62-73 1.06770 1.02680 1.00450 1.00220 1.00060 1.01830 1.01350 1.00280 A74-91 1.02300 1.00250 0.99610 0.99687 1.00510 1.00960 1.01240 1.00180 A92-99 1.04040 1.01700 0.99896 1.00550 0.99533 1.01550 1.00790 1.00070 A00-11 1.03010 1.00230 0.99995 0.99867 1.01180 1.00890 1.00770 1.01040 Looking a he sample (arihmeic) averages lised in he A62-11 row of Table 4, i can be seen ha he (gross) real income generaed by he Canadian business secor over he enire sample period grew a 3.82 percen per year over he 50 years 1961-2011. The bigges conribuor o his growh was he growh of qualiy adjused labour inpu a 1.25 percenage poins per year. 16 Nex was capial services growh (1.08 percenage poins per year) followed by Toal Facor Produciviy growh, τ, which conribued on average 1.06 percenage poins per year and declines in real impor prices (0.41 percenage poins per year). Declines in real domesic oupu prices and real expor prices gave rise o negaive average conribuion facors, 0.051 and 0.005 percenage poins per year respecively. The las column in Table 4 gives he produc of he real expor and real impor price conribuion facors, α XM, defined as: (4) α XM α X α M. 16 This is he arihmeic average rae of produciviy growh which is greaer han he more accurae geomeric average rae of produciviy growh which was 1.026. Due o he ease of compuaion, we work wih arihmeic average raes in Table 4.
13 Roughly speaking, α XM is a erms of rade conribuion facor; i gives he conribuion o real income growh of he combined effecs of real changes in he inernaional prices facing he Canadian business secor. 17 I can be seen ha he effecs of changing real inernaional prices are no negligible for Canada: on average, changing real expor and impor prices conribued 0.39 percenage poins per year o real income growh over he enire sample period. 18 However, for shorer periods, he effecs of changing real inernaional prices can be far more imporan in explaining changes in he real income generaed by he marke secor of an economy. Thus if we resric our aenion o he period 2000-2011, i can be seen by looking a he las row of Table 4 ha he effecs of improvemens in Canada s erms of rade are he mos imporan explanaory facor. Thus during his period, he average annual growh in he real income generaed by he Canadian business secor was 3.01 percen per year and he following facors explained his growh rae: decreases in he real price of impors (1.18), increases in qualiy adjused labour inpu (0.89), increases in capial services inpu (0.77) and improvemens in TFP (0.23). There were small negaive conribuors o marke secor real income growh during he naughs: decreases in he real price of domesically produced goods and services ( 0.005) and decreases in he real price of expors ( 0.113). Thus decreases in he real price of impors proved o be he mos imporan facor in explaining he growh in real income generaed by he marke secor during his period. Overall, he join effecs of changes in real expor and impor prices conribued abou 1.04 percenage poins per year on average o he growh of marke secor real income during he naughs, which was greaer han he conribuion of capial inpu growh over his period (which was 0.77 percenage poins per year on average). 19 Thus improvemens in he erms of rade largely compensaed for he poor produciviy performance during he naughs, leading o an overall reasonable rae of growh for he real income generaed by he Canadian business secor. The las four rows of Table 4 presen he various growh facors for 4 subperiods: The 12 golden years for he Canadian economy, 1962-1973, when he real income generaed by he business secor grew by 6.77% per year and TFP growh was a sellar 2.68% per year; The 18 dismal years for he Canadian economy, 1974-1991, characerized by sagflaion, oil shocks and rapidly increasing ax raes when he real income generaed by he business secor grew by 2.30% per year and TFP growh was only 0.25% per year; 17 Ulrich Kohli has poined ou ha his is a sligh abuse of erminology. Sricly speaking, he erms of rade is he price of expors over he price of impors and hence involves only wo prices. Our definiion of α XM involves hree prices: he price of expors, he price of impors and he price of domesic consumpion. Our erms of rade conribuion facor is he rae of change counerpar o Kohli s (2006; 50) rading gains facor. 18 Thus he conribuion of falling real impor prices ouweighs he effecs of falling real expor prices. 19 These resuls are very similar o he resuls obained for Ausralia using a similar framework by Diewer and Lawrence (2006); i.e., boh Ausralia and Canada have had very favourable changes in heir erms of rade in recen years which conribued grealy o real income growh during he naughs.
14 The 8 years in he nineies afer he recession of 1991, 1992-1999, when real income growh recovered o 4.04% per year and TFP growh also recovered o 1.70% per year and The 12 years in he presen cenury, 2000-2011, when TFP growh dropped off o 0.23% per year bu real income growh was sill reasonably srong a 3.01% per year due o he very srong conribuion made by falling real impor prices during his period, which conribued on average 1.18% per year o real income growh. The annual change informaion in Table 4 can be convered ino levels using equaions (38) in Appendix 1 (wih obvious exensions o muliple inpus and oupus). Thus le T, A D, A X, A M, B L, B K and A XM be he cumulaed producs of he annual link facors τ, α D, α X, α M, β L, β K and α XM respecively. Using hese definiions and cumulaing equaions (3) leads o he following equaion, which explains he cumulaive growh in real gross income generaed by he Canadian business secor relaive o he base year 1961: (5) ρ /ρ 1961 = T A D A X A M B L B K ; = 1962, 1963,..., 2011. The cumulaed variables ha appear in (5) above are repored in Table 5 below along wih he cumulaed erms of rade conribuion facor, A XM defined o be he produc of he wo cumulaed inernaional price facors, A X and A M. Table 5: Business Secor Cumulaed Growh in Real Income and Cumulaed Conribuion Facors Year ρ /ρ 1961 T A D A X A M B L B K A XM 1961 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1962 1.06736 1.03984 1.00043 1.00548 0.98660 1.02745 1.00666 0.99201 1963 1.14320 1.09283 1.00181 1.00478 0.98074 1.04262 1.01633 0.98543 1964 1.24046 1.12706 1.00847 1.00780 0.97960 1.07062 1.03256 0.98724 1965 1.35447 1.15556 1.01952 1.01008 0.98364 1.10087 1.05111 0.99356 1966 1.47025 1.17734 1.02072 1.01117 0.98932 1.13633 1.07626 1.00037 1967 1.49697 1.16526 1.01970 1.01001 0.99165 1.14796 1.09575 1.00157 1968 1.55314 1.19445 1.01408 1.01117 0.99635 1.14931 1.10739 1.00748 1969 1.63321 1.22087 1.01713 1.00899 0.99851 1.16518 1.12038 1.00749 1970 1.69845 1.24222 1.02274 1.01023 1.00036 1.16609 1.13443 1.01059 1971 1.79564 1.27050 1.03706 1.00776 1.00012 1.18008 1.14583 1.00788 1972 1.90753 1.30027 1.04279 1.00658 1.00621 1.20016 1.15735 1.01283 1973 2.18407 1.37169 1.05467 1.02607 1.00746 1.24288 1.17505 1.03373 1974 2.32769 1.38211 1.05838 1.05970 0.98741 1.26741 1.19990 1.04636 1975 2.19290 1.30840 1.03886 1.05459 0.98805 1.26203 1.22685 1.04199 1976 2.38508 1.37724 1.04962 1.05889 0.99727 1.25850 1.24150 1.05600 1977 2.52608 1.45657 1.04833 1.06669 0.97736 1.26447 1.25492 1.04254 1978 2.60302 1.46085 1.04625 1.07144 0.96680 1.29428 1.27030 1.03587 1979 2.78667 1.47244 1.04473 1.09692 0.95604 1.33810 1.29094 1.04869 1980 2.77611 1.38920 1.03830 1.11305 0.96569 1.35997 1.31665 1.07486 1981 2.84965 1.36792 1.05589 1.11052 0.95885 1.37801 1.34456 1.06482 1982 2.63717 1.33300 1.04774 1.08306 0.97258 1.32249 1.35545 1.05336 1983 2.72078 1.38589 1.03071 1.05944 1.00025 1.32277 1.35882 1.05970 1984 2.87474 1.44428 1.02410 1.05520 1.00006 1.34908 1.36523 1.05526 1985 3.03188 1.48311 1.02262 1.05030 1.00197 1.38049 1.37601 1.05237 1986 3.09495 1.47658 1.02424 1.04027 1.00338 1.41339 1.38715 1.04378 1987 3.35065 1.51234 1.02684 1.03796 1.01951 1.45441 1.40191 1.05821 1988 3.54099 1.51861 1.02670 1.02835 1.04041 1.49135 1.42335 1.06991 1989 3.62515 1.49572 1.02651 1.02506 1.05296 1.51407 1.44479 1.07935
15 1990 3.51690 1.47816 1.00790 1.00130 1.07041 1.50988 1.45870 1.07180 1991 3.21248 1.42159 0.98214 0.96741 1.10181 1.47227 1.46618 1.06590 1992 3.29923 1.48441 0.97892 0.97334 1.08934 1.45983 1.46684 1.06030 1993 3.31647 1.48001 0.97761 0.98355 1.07334 1.47855 1.46849 1.05569 1994 3.56150 1.52655 0.98735 1.00875 1.04602 1.51713 1.47606 1.05517 1995 3.76972 1.54518 0.99046 1.04087 1.03318 1.54290 1.48451 1.07540 1996 3.89206 1.55523 0.98231 1.03219 1.05130 1.56963 1.49573 1.08514 1997 4.01928 1.56249 0.97849 1.02324 1.05859 1.60048 1.51640 1.08319 1998 4.15686 1.59610 0.97881 1.01392 1.04649 1.62953 1.53888 1.06106 1999 4.40298 1.62503 0.97392 1.00999 1.06043 1.66413 1.56090 1.07102 2000 4.78464 1.67240 0.97033 1.03154 1.06550 1.69840 1.57945 1.09911 2001 4.77230 1.67124 0.96416 1.02255 1.06455 1.71072 1.59041 1.08856 2002 4.95612 1.74041 0.96671 1.00256 1.06809 1.72713 1.59275 1.07083 2003 4.93277 1.66839 0.95698 0.98425 1.12129 1.74533 1.60396 1.10363 2004 5.28530 1.69074 0.95920 0.98958 1.14427 1.78068 1.61629 1.13235 2005 5.54370 1.70274 0.95871 0.99311 1.16377 1.79372 1.63813 1.15575 2006 5.74783 1.69887 0.96392 0.98588 1.17945 1.81276 1.66518 1.16280 2007 5.97765 1.68265 0.96907 0.98139 1.20463 1.83793 1.68714 1.18222 2008 6.16302 1.66714 0.97137 1.01553 1.18863 1.84691 1.70706 1.20709 2009 5.54828 1.61480 0.97848 0.96654 1.18589 1.79889 1.70301 1.14621 2010 5.87703 1.63893 0.97512 0.97081 1.21631 1.82737 1.70425 1.18081 2011 6.20199 1.66630 0.97324 0.99129 1.21881 1.84900 1.71193 1.20819 Looking a he las row of Table 5, i can be seen ha he gross real income generaed by he business secor grew 6.20 fold over he years 1961-2011. The main facors explaining his growh are growh of qualiy adjused labour inpu (cumulaive growh facor 1.85), growh of capial services or capial deepening (cumulaive growh facor 1.71), produciviy increases (cumulaive growh facor 1.67) and lower real impor prices (cumulaive growh facor 1.22). There were small negaive conribuions from declining real domesic oupu prices (cumulaive growh facor 0.97) and declining real expor prices (cumulaive growh facor.99). In recen years, he real prices of Canada s raw maerials expors have increased dramaically. However, hese increases do no show up in he A X column of Table 5; i.e., he overall real price of Canadian expors has remained relaively consan in recen years. This apparen conradicion can be explained by falling real prices for Canadian expors of manufacured goods. As already noed above, he effecs of falling real impor prices in recen years have been subsanial. The cumulaive conribuion facors lised in Table 5 are ploed in Char 1 below.
16 1.9 1.7 1.5 1.3 1.1 0.9 1961 Char 1: Cumulaed Conribuion Facors ha Explain he Growh of Real Income Generaed by he Canadian Producion Secor 1964 1967 1970 1973 1976 1979 T AD AX AM BL BK 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 I can be seen ha labour, capial and Toal Facor Produciviy growh were he main conribuors o he generaion of real income growh over he period 1961-2011 bu ha falls in impor prices were an imporan conribuory facor during he period 2002-2007. 4. Comparison wih he KLEMS Program Mulifacor Produciviy Esimaes As was menioned earlier, he Saisics Canada KLEMS program has recenly provided esimaes of he mulifacor produciviy growh for he Canadian business secor; see Baldwin, Gu and Yan (2007) and Baldwin and Gu (2007) for a descripion of he mehods used in his program. In secion 2, we explained ha our level of business secor Toal Facor Produciviy using our user cos framework ended up a 1.6663 in 2011 from is saring value of 1 in 1961 whereas he KLEMS Mulifacor business secor produciviy ended up a 1.1477 in 2011. In his secion, we will ry o deermine why our esimaes are so differen from he corresponding KLEMS program esimaes. Our measures of real business secor oupu, labour and capial services inpu are Q Y, Q L and Q K and our measure of he capial sock used by he business secor is Q KW. For convenience, hese measures are lised in Table 6 below. The KLEMS program provides index counerpars o our measures for he years 1961-2011 in CANSIM Table 3830021, Series V41712932, V41712949, V41713051 and V41713068 respecively. The KLEMS program also provides nominal dollar esimaes for business secor oupu, labour inpu and capial services inpu for he years 1961-2008; see CANSIM Table 3830021, Series V41713153, V41713170 and V41713228 respecively. We use he saring 1961 values for he KLEMS value of business secor oupu, labour and capial inpu and conver he KLEMS consan dollar esimaes for oupu, labour and capial inpu ino 1961 consan dollar series and hese official KLEMS series are lised as Q YO, Q LO and Q KO in Table 6 below. The KLEMS daa base does no seem o have dollar esimaes for he value of
17 business secor capial socks, 20 so we use he KLEMS capial sock index Series V41713068 and conver i ino a 1961 consan dollar series using our esimae for he saring business secor capial sock, V 1961 KW. The resuling official series is lised as Q KWO in Table 6 below. Table 6: Our Esimaes of Business Secor Oupu Q Y, Labour Inpu Q L, Capial Services Q K, Capial Socks Q KW and he Corresponding Official Esimaes Q YO, Q LO, Q KO and Q KWO and Consan Dollar Paid Rens Q PR in 1961 Dollars (Millions) Year Q Y Q YO Q L Q LO Q K Q KO Q KW Q KWO Q PR 1961 29368 30805 19240 19201 10128 11604 65074 65074 1107 1962 31585 33059 20049 20025 10326 12054 66186 66820 1149 1963 34008 35013 20506 20540 10613 12593 67985 68814 1170 1964 36591 37567 21372 21466 11091 13493 70874 72554 1221 1965 39269 40122 22321 22444 11655 14752 73925 76793 1278 1966 42286 42827 23452 23577 12450 16281 78410 82029 1337 1967 43046 43728 23822 24040 13105 17451 82234 86766 1390 1968 44645 46133 23864 24143 13515 18350 84583 90256 1420 1969 46806 48537 24366 24658 13986 19430 87164 94495 1476 1970 48260 49889 24395 24761 14513 20599 90627 98733 1530 1971 50452 51843 24836 25276 14953 21588 92937 102723 1551 1972 53041 54998 25469 26048 15415 23028 94972 107460 1584 1973 58832 59206 26868 27541 16106 25007 98134 112945 1566 1974 61727 61310 27717 28519 17037 26986 103385 119677 1558 1975 59494 62061 27534 28467 18122 28785 110211 126159 1544 1976 63195 66118 27417 28467 18769 30764 112964 132642 1482 1977 67878 68823 27616 28776 19366 32383 115949 138127 1384 1978 70536 71979 28636 29960 20037 34092 119537 143363 1322 1979 74698 75134 30208 31710 20912 36341 123921 149845 1295 1980 73053 76938 31015 32740 22012 38949 130218 156079 1313 1981 74433 80244 31669 33615 23302 41828 135275 163309 1359 1982 70175 77088 29737 31968 23850 42817 138323 165802 1410 1983 73155 79192 29747 32174 24016 43897 136998 167298 1444 1984 78122 84752 30714 33358 24312 45246 137639 169044 1471 1985 82738 89260 31892 34748 24809 47045 140493 172285 1500 1986 85019 91514 33124 36241 25343 48844 142988 176523 1539 1987 90559 96022 34682 38042 26064 51453 145848 182258 1599 1988 94670 100981 36105 39793 27136 54331 150432 189738 1662 1989 96089 103685 36972 40874 28278 57389 155302 197218 1726 1990 95610 103235 36814 40874 29056 59368 158744 202703 1798 1991 90121 99027 35445 39587 29504 60538 160238 205445 1853 1992 93349 99628 35000 39123 29544 61527 158327 205695 1899 1993 94373 102483 35683 39998 29642 62517 157980 206443 1943 1994 100395 108795 37145 41543 30070 64496 158425 208437 1982 1995 103938 112401 38163 42727 30529 66834 159699 210681 2016 1996 107231 114956 39243 43962 31132 69353 162378 213673 2049 1997 111367 121417 40501 45404 32269 73401 166742 220904 2097 1998 117544 127127 41680 46845 33566 77269 170681 227386 2139 1999 123965 135542 43103 48389 34865 81676 174830 234118 2187 2000 131753 144108 44563 50088 35944 85454 178130 241598 2231 2001 133537 146362 45096 50706 36583 87793 181277 245338 2279 2002 140604 150269 45811 51478 36720 89952 180822 249327 2341 2003 137165 153124 46610 52405 37380 92830 183931 254812 2413 2004 142907 158383 48181 54206 38111 96698 185502 261544 2487 2005 146935 163492 48777 54927 39392 101646 189852 270021 2560 2006 150603 167850 49653 55905 41010 107223 195631 279994 2638 2007 153232 171306 50817 57295 42360 111990 200440 288720 2715 2008 154363 171306 51240 57758 43583 116398 205062 295702 2797 20 Acually, his informaion is available in CANSIM Table 3830025.