Investment and Productivity in Canada – Investment per worker declined by 20% from 2006 to 2021, significantly in large and medium-sized firms

Investment in fixed capital has been weak in Canada since the mid-2000s. The ratio of investment to net capital stock and investment per worker declined after 2006, especially after 2014. As a result of this investment slowdown, the growth in labour productivity declined after 2006. This paper examines the sources of this weakness in capital investment in Canada using firm-level data. It finds that investment per worker declined by 20% from 2006 to 2021, and the decline in investment per worker was more significant in large and medium-sized firms, as well as in foreign-controlled firms, compared with that in small firms and in domestic-controlled firms. The weakness in capital investment after 2006 coincided with a change in the mix of investment toward intangible investment, and this shift toward intangibles was more pronounced among large and foreign-controlled firms. The paper finds that an increase in industry concentration and a decline in firm entry rates have a negative effect on firm investment, and the effect is larger among small firms. These findings are interpreted as evidence that a decline in competition leads to a decline in investment or competition promotes investment among firms, especially among small firms. After 2006, industry concentration changed little, while firm entry rates declined sharply. These decreasing entry rates accounted for 30% of the decline in investment per worker after 2006.

Chosen excerpts by Job Market Monitor. Read the whole story @  Investment Slowdown in Canada After the Mid-2000s: The Role of Competition and Intangibles