Working Paper Series

Are Canadian Industries Moving Up the Value Chain?

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Abstract

Moving up the value chain has recently made its way to the forefront of public policy debate (in many developed countries, including Canada) as a crucial means to improve productivity performance, job creation and thereby to improve living standards. A shortcoming of this debate, however, is that there is no readily comparable indicator across industries that allows to ascertain appropriately whether they are moving up (or going down) the value chain. In this paper, we develop a composite indicator of a number of individual fundamental determinants of productivity (using the latent variable approach) for undertaking a more comprehensive assessment as to whether an industry is moving up the value chain. The trends in the new indicator suggest that most Canadian industries are moving up the value chain. We find that increasing offshoring and greater competition induce industries to move up the value chain. We also find, as expected, that productivity tends to move in tandem with the composite indicator.