Productivity Levels and International Competitiveness between Canadian and U.S. Industries

The implementation of the Free Trade Agreement in 1989 between Canada and the United States, followed by the North America Free Trade Agreement in 1994, has intensified competition between Canadian and U.S. firms as well as provided more opportunities for them. This study presents a snapshot of the competitive position of Canadian industries relative to U.S. industries in 1995. In addition, the study analyzes how the Canadian private business sector's competitiveness has evolved relative to its U.S. counterpart between 1961 and 1995. In order to compare international competitiveness between the two countries, we first construct purchasing-power parities for output and inputs by industry using bilateral CanadaU.S. commodity price data (Dale W. Jorgenson and Masahiro Kuroda, 1995; Lee and Tang, 1999).1 We estimate purchasing-power parities for capital input based on the relative prices of investment goods, taking into account the flow of capital services per unit of capital stock.2 We use hourly labor compensation rates disaggregated by 112 worker types in the two countries to estimate purchasing-power parities for labor input.3 These purchasing-power parities take into account differences between Canada and the United States in the composition of output and inputs for each industry considered, thereby allowing comparisons of both prices and quantities of output and inputs in Canada with those in the United States.