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No. 23: Linkages Between Technological Change and Productivity Growth

by Steven Globerman, Western Washington University, 2000


Introduction

The purpose of this study is to review and synthesize the relevant literature dealing with the linkages between technological change and productivity change. The two concepts, although theoretically distinct, are often linked in policy discussions, and both are the focus of a wide range of public policies.

Recent commentaries in the popular press have highlighted Canada's stagnating productivity performance relative to that of the United States.1 Various possible explanations have been suggested including a long-standing concern in Canada about the relatively small amount of research and development (R&D) carried out by firms in this country.2 Indeed, a number of other possible explanations including government regulations and the decline in the value of the Canadian dollar, which raises the cost for Canadian companies to import productivity-enhancing technology, are also linked to technological change.3

A slowdown in the rate of technological change has also been widely bruited as a possible cause of the post-1973 productivity growth slowdown among developed countries. While the evidence (reviewed below) on this issue is inconclusive, there is now a growing perception that major technological developments in computing and telecommunications, including the emergence and growth of the Internet as a major new mode of mass communications, will induce a new and dramatic improvement in productivity growth, as well as in the growth of real incomes.4

The propensity of policymakers to look to the promotion of technological activities as an important component of industrial growth strategies is certainly not new, especially in Canada where a debate about the causes and consequences of technological change has taken place over at least three decades.5 Having implemented one of the most generous R&D tax regimes among OECD countries, the apparent failure of Canadian productivity growth rates to track those of other countries is disappointing. It is also a cause for questioning the faith being reinvested by the Canadian government in offering yet more financial assistance for technological activities.

The linkages between technological activities and productivity changes are complex and difficult to measure. Thus, notwithstanding the relatively large literature on the topic, there is no "conventional wisdom" on either the nature or the magnitude of these linkages. The purposes of this report are to review and synthesize the relevant literature, as well as to highlight important areas for future research and suggest specific research projects.

The report proceeds in the following way. Section 2 sets out the simple theoretical linkages between productivity growth and technological change. It also identifies and evaluates the conceptual and empirical problems associated with specifying and estimating those linkages. Section 3 summarizes and synthesizes empirical studies of the relationships between R&D, innovation and productivity at the levels of both the aggregate economy and individual industries and firms, or groups of industries and firms. Section 4 discusses factors that have been identified as "conditioning" the empirical relationship between technological change and productivity change, including the educational level of the workforce, industrial competition and so forth. Section 5 looks at whether there is any temporal pattern in the observed linkages between technological change and productivity change and what factors might account for any observed pattern. Section 6 focuses on the relationship between computerization and related technological changes in telecommunications and productivity change. The main issue of interest here is whether the "Digital Revolution" is sparking an accelerated growth in productivity and, if not, why. Section 7 identifies the important remaining gaps in our knowledge about the relationship between technological change and productivity change. Section 8 suggests a number of research projects designed to address the gaps identified in the preceding section.

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