What affects MFP in the long-run? Evidence from Canadian industries

Using data on 12 Canadian industries for 1976--2003, this study employs a dynamic panel error correction model to establish the relative importance of potential determinants of Multifactor Productivity (MFP). The model restricts the long run coefficients of these factors to be the same across industries, but allows industry heterogeneity in the short-run coefficients. After controlling for capacity utilization, Information and Communications Technologies (ICT) capital, outsourcing and global trade openness are found to have a statistically significant positive effect on MFP. The long run impact of ICT is small, but its recent contribution to MFP growth is sizeable for some industries, possibly reflecting the delayed benefits of the ICT investment surge in the late 1990s due to adjustment costs. Global trade openness and industry outsourcing generally raises MFP.