Economists view productivity growth as the main long-term determinant of improvements in the average standard of living, as measured by the growth in gross domestic product (GDP) per capita. Researchers and policy makers note that a decline in productivity growth over the past few decades is one of Canada’s most important economic challenges. This decline is a concern for parliamentarians and the federal government because, if it is not reversed, Canadians’ average standard of living will grow less rapidly, if not decline, in the future.
The aim of this publication is to explain what productivity growth is and why it matters for improving Canada’s average standard of living. It explores the importance of “new ideas” – a concept coined by the Nobel Laureate Paul M. Romer – in determining Canada’s long-term productivity growth and emphasizes that the long term growth of an advanced economy like Canada depends largely on the extent to which new ideas are generated and those ideas become innovations that increase productivity. The basic insight emerging from the economic literature is that the long run growth rate of an advanced economy is primarily the product of the number of researchers, entrepreneurs and scientists and their respective productivity.
Recent research suggests that significant, ground-breaking ideas are becoming more difficult to find and that investments in research and development need to be significantly enhanced in Canada and globally in order to continue to find those ideas.
Read the full text of the HillStudy: The Importance of New Ideas in Determining Canada’s Long-Term Productivity Growth
By Mehrab Kiarsi, Library of Parliament
Categories: Economics and finance, Executive summary