Unbalanced Industry Demand and Supply Shifts: Implications for Economic Growth in Canada and the United States MEPA/APME Presentation to The 2008 World Congress on National Accounts and Economic Performance Measures for Nations May 12–17, 2008 MEPA/APME Anik Dufour, Jianmin Tang, and Weimin Wang

MEPA/APME 2 Introduction: motivation Real GDP is non-additive or A proxy or

MEPA/APME 3 Introduction: h ow does an industry influence real aggregate GDP in the chained-Fisher index? – Real industry output – Industry output prices

MEPA/APME 4 Introduction: w hat drive a change in industry output and price? – Supply shift, and – Demand shift

MEPA/APME 5 Introduction: s upply shifts and demand shifts are often unbalanced across industries. – Positive supply shifts: more for the manufacturing less for some services industries – Positive demand shifts: More for services Less for goods

MEPA/APME 6 Introduction: production resources will be reallocated under unbalanced industry demand and supply shifts

MEPA/APME 7 Objective What are the industry contributions to –aggregate GDP growth, or –aggregate labour productivity growth?

MEPA/APME 8 Real GDP

MEPA/APME 9 Real GDP growth from year z to year t

MEPA/APME 10 Industry contributions to real GDP growth 1 st term: pure quantity effect 2 nd term: pure price effect 3 rd term: the interaction of the first two effects.

MEPA/APME 11 Major desirable properties  Consistent with real GDP in the chained-Fisher index  Additive for any long period  Invariant to base-year

MEPA/APME 12 Canada: industry contribution to aggregate GDP growth

MEPA/APME 13 US: industry contribution to aggregate GDP growth

MEPA/APME 14 Aggregate labour productivity

MEPA/APME 15 Aggregate labour productivity growth from year z to year t

MEPA/APME 16 Industry contributions to aggregate labour productivity growth 1 st term: the pure productivity effect 2 nd term: the relative size effect 3 rd term: the interaction of the first two effects.

MEPA/APME 17 Major desirable properties  Consistent with real GDP in the chained-Fisher index  Additive for any long period  Invariant to base-year

MEPA/APME 18 Relative size by industry in Canada and the U.S.

MEPA/APME 19 Canada: industry contribution to aggregate labour productivity growth,

MEPA/APME 20 U.S.: industry contribution to aggregate labour productivity growth,

MEPA/APME 21 Conclusions 1.This paper provides a decomposition technique to study industry contribution to aggregate output and labour productivity growth. The technique is consistent with real GDP in the chained-Fisher index and has several desirable properties. 2.The framework distinguishes the industry contribution from changes in the industry output and changes in industry’s output price. It shows that over the period , the service sector was the major contributor to both real GDP growth and aggregate labour productivity growth. 3.The estimate of the contribution for the service sector is much higher than estimates using traditional methods that focus only on the quantity effect. By ignoring the price effect, traditional methods underestimate the contributions of service industries with rising real output prices to real GDP growth and aggregate labour productivity growth.

MEPA/APME 22