Study: The information and communications technology sector through the boom and bust years

Despite its weak performance after 2000, Canada's information and communications technology (ICT) sector still shows signs of dynamism, according to a new study that tracks its growth and decline through a boom during the late 1990s and its post-2000 bust.

With dramatic increases in stock prices, output and employment, high-tech industries were an important engine of economic growth during the latter part of the 1990s. Just as dramatic, apparently, has been ICT's post-2000 slump.

Yet, even during a period of considerable retrenchment, ICT firms continued to create new establishments at a rate that exceeded the rest of the business sector, the study shows.

The ICT sector experienced high rates of economic growth as measured by gross domestic product (GDP) during the late-1990s. Between 1997 and 1999, GDP growth in the sector averaged 19% a year.

Since 2000, GDP growth in the sector has been weak. In 2000, economic output declined 2.6%. In 2002, GDP grew only 1.0%, and in 2003 it went up 2.5%. Only in 2003 did output in ICT return to its 2000 levels.

ICT employment has followed a similar pattern to GDP. Employment growth averaged 13% a year between 1997 and 1999, with employment declining after 2001, particularly in manufacturing.

The picture that emerges is a sector that experienced a sharp reversal from which it has not fully recovered.

An additional perspective on the sector's performance can be gained by looking at the rates of entry of new business establishments, for example, manufacturing plants, built by new and incumbent ICT firms.

High rates of entry are indicative of a sector whose firms and their financial backers see opportunities to develop new products that, in the long run, may drive future growth.

Between 1998 and 2000, entry rates in the ICT sector were between 25 and 44 percentage points above the rest of the business sector. (An entry rate in a given year is defined as the proportion of employment in establishments that were new from the year before.)

However, after 2000, entry rates remained relatively high. Entry rates in 2001 were 16 percentage points above that of the rest of the business sector, and in 2002, they were 14 percentage points higher.

In 2003, entry rates rose to 40 percentage points above the business sector, a rate reminiscent of the ICT boom years.

Although these relatively high entry rates have not yet translated into strong employment growth, they do suggest firms continue to see new market opportunities.

The research paper An Anatomy of Growth and Decline: High-tech Industries through the Boom and Bust Years, 1997 to 2003, no. 10 (11-624-MIE2005010, free) is now available online. From the Our products and services page, under Browse our Internet publications, choose Free, then National accounts.

More studies on the ICT sector are available free of charge in the analytical series Update on Economic Analysis on our Web site (11-623-XIE).

For more information or to enquire about the concepts, methods or data quality of this release, contact Mark Brown (613-951-7292) or Desmond Beckstead (613-951-6199), Micro-economic Analysis Division.