Frontier firms, productivity dispersion and aggregate productivity growth in Canada / by Wulong Gu.: CS11-0019/439E-PDF

"Labour productivity growth in the business sector in Canada started to decline in 2000, from 2.3% per year in the period from 1991 to 2000 to 1.0% per year in the period from 2000 to 2015. This paper examines how innovation, innovation diffusion across firms, and business dynamism affected the productivity slowdown. The decline in aggregate labour productivity after 2000 was found to be caused by a decline in productivity growth in both frontier firms (defined as the top 10% of the most productive firms in an industry) and—mainly—non-frontier firms (defined asall other firms). The decline in labour productivity growth of non-frontier firms after 2000 accounted for 2.95 percentage points, or 90%, of a 3.21-percentage-point decline in aggregate labour productivity growth between the periods of 1991 to 2000 and 2000 to 2015. This paper also found that the decline in aggregate labour productivity growth was caused by a decline in technical change by frontier firms and, to a lesser extent, by a decline in catch-up of non-frontier firms to frontier firms after 2000. These results suggest that the pace of innovation in frontier firms and the rate of innovation diffusion from frontier firms to non-frontier firms both declined in Canada after 2000, contributing to aggregate productivity slowdown in that period. However, the relativeimportance of innovation and innovation diffusion is sensitive to the methods used. Finally, this paper found that resource reallocation declined in Canadian firms after 2000, contributing to the decline in aggregate labour productivity growth in the business sector in that period"--Abstract, page 5.

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