ICT Investment, Spillover Effect, and Productivity in Canada : Provincial and Industry Analysis

Research on the effect of ICT on productivity in OECD countries is already extensive, but the spillover and time-varying effects of ICT investment across economic activities have been only minimally explored. This paper investigates the impacts of ICT and its spillovers on productivity in Canada, focusing on heterogeneity across provinces and industries over time. The panel data estimation model includes 10 provinces with diverse economic activities for the period 1990-2008, and the two-digit level industries for the period 1981-2008. The findings show that ICT has a positive impact on labour productivity, but the effects vary significantly across provinces, industries, and time. Specifically, while provinces with higher shares of manufacturing and services in their GDP have reaped the benefits of ICT investment, other provinces primarily dependent on natural resources and agriculture are lagging behind. The industry level analysis also reveals that manufacturing and services industries have benefited from ICT investment much more than primary sector industries. The results further indicate that ICT investment in the United States, a major trading partner, has spilled over to some Canadian provinces and industries and that the overall ICT effects are stabilized in those ICT-intensive provinces and industries