Capital Needed: Canada Needs More Robust Business Investment

Self Cite

Investment by Canadian businesses is critical to Canada's economic growth. In the short run, capital spending boosts demand for products and services. Over time, business investment adds to Canada's capital stock-the buildings, equipment and intellectual property workers need to boost their productivity and pay. Unhappily, the latest figures from Statistics Canada and the Organisation for Economic Cooperation and Development (OECD) suggest that, after a relatively robust performance between 2009 and 2014, capital investment in Canada has fallen dramatically. In response, all levels of Canadian government can and should liberalize trade and adjust the tax environment to boost private-sector capital investment.

Section: The International Gap In Investment Per Workermentioning

confidence: 99%

Section: Box 1: Measuring and Interpreting Investment Per Workermentioning

confidence: 99%

Equipment Failure: Feeble Business Investment Costs Canadians Their Competitive Edge

Robson¹,

Jacobs²,

Dachis³

2017

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“…Not all the data are available for all OECD countries throughout the period: besides Canada, our figures include Australia, Belgium, Denmark, Finland, France, Germany, Iceland, Japan, Korea, the Netherlands, New Zealand, Norway, Sweden, Switzerland, the United Kingdom and the US (See Appendix for country-specific comparisons). Many OECD countries are increasingly reporting R&D spending in a consistent way, which ameliorates a longstanding concern with our comparisons (see Dachis, Robson and Chesterley 2014).…”

Section: E-brief Box 1: a Measure Of Investment For 2015 Onwardsmentioning

confidence: 99%

“…The connection between economic growth and capital accumulation goes back toSolow (1956) who maintained that a capital stock increase expands both overall output and output per worker. See Sali-i-Martin (1997) for the evidence of a strong nation-level empirical link between growth and investment, especially in equipment.2 For earlier comparative per-worker investment studies, seeGoldfarb (2004, 2006);Goldfarb and Robson (2005);Banerjee andRobson (2007, 2008);Busby and Robson (2009, 2010, 2011; Robson (2012, 2013) andDachis, Robson and Chesterley (2014).…”

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confidence: 99%

A Crisis of Capital: Canadian Workers Need More Tools, Buildings and Equipment

Dachis¹,

Robson²,

Jacobs³

2015

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Business investment is critical to Canada's economic growth. In the short run, spending on new capital adds to demand, so ups and downs in investment affect the economic cycle. Much more important in the long run is the rate at which business investment adds to Canada's capital stock -the machinery and equipment workers use in their jobs, the intellectual property that a modern creative economy depends on, the structures where production takes place and the engineering infrastructure that plays a central role in a modern economy. Put simply, increased fixed investment typically means more productive and, therefore, better-paid employees.Many thanks to the reviewers of a previous draft of this paper and of previous editions of this series. Of course, any errors of data interpretation or otherwise are our own.

“…Nonfinancial firms' cash holdings, as a share of output, began to rise in the early 1990s, and continued to do so steadily until Q3 2010, since when the share has remained flat (CANSIM Tables 380-0064 and 187-0001).2 Similar trends and concerns have arisen in Western Europe (including the UK) South Africa, and the US, where international tax factors play a role in corporate behavior that is less evident in Canada.3 Within Canada, there is much regional dispersion of private investment rates with low investment levels in some parts of the country compared to other countries(Cross 2014, Dachis et al, 2014. Further, the investment share of nonresidential structures and intellectual property has risen, while that of machinery and equipment has fallen, likely reflecting strength in the resource sector relative to manufacturing.…”

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confidence: 93%

It's Alive! Corporate Cash and Business Investment

Poschmann¹

2014

Fears of "dead money" lying idle on corporate balance sheets have spurred some policymakers and observers to push for heavier taxation of private activity or greater public-sector investment. Yet such concerns seem misplaced. Business sector investment Canada-wide is growing at roughly the same pace as the economy, and the investment share of output is just above its 30-year average, as is typical of an economic recovery period. Meanwhile, the run-up in cash holdings after the last recession reflects long-term changes in business practices, and uncertainty about the future. Concerns over business investment, if any, would better be handled through improvements to market certainty and the investment environment through, for example, stable fiscal planning aimed at building investor confidence. Concerns continue to arise, in Canada and elsewhere, over a perceived slow pace of business investment growth, and rising holdings of corporate cash (Isfeld 2014), and possible connections between the two phenomena. Concern over these issues seems misplaced, and is worrisome. The "dead money" view is routinely used to build the case, as in Ontario, for heavier taxation of private activity, and for potentially unaffordable and unproductive public-sector investment (Spiteri 2014). Yet the view is mostly wrong, as I discuss in what follows. The author thanks colleagues of the C.D. Howe Institute, Phil Cross, Andrew Sharpe, and anonymous reviewers of early drafts. The errors that remain are mine.