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Archived — Research Summaries: Working Paper 2006-04: Unbalanced Industry Demand and Supply Shifts: Implications for Economic Growth in Canada and the United States

by Anik Dufour, Jianmin Tang and Weimin Wang.

This paper examines industry contributions to aggregate output and labour productivity growth, using a framework consistent with the real value concept of real GDP in the chained-Fisher index. It distinguishes between the contribution resulting from changes in an industry's output level and the contribution resulting from changes in its output price. This allows one further to determine whether the observed changes in the industry's output and price levels result from a net increase (decrease) in the demand for or the supply of the industry's product. This paper shows that the service sector was the major contributor to both real GDP growth and aggregate labour productivity growth in Canada and the United States over the past two decades, driven by high demand for some services in the two countries. The contribution is significantly higher than the previous estimates obtained using traditional methods that focus only on the quantity effect. By ignoring the price effect, these traditional methods ignore an industry's contribution from the rising price of its output to the increase in the aggregate measures.

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