Executive summary

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This analysis uses the data from Canada's System of National Accounts to investigate the domestic production and domestic use of information and communications technologies (ICT). Using the input-output accounts, we develop an ICT classification system that links domestic technology producers to their principal commodity outputs. We then produce a series of descriptive statistics that focus on different aspects of technology production and technology use. Two estimates of the importance of technology production are reported — the contribution that ICT producers make to total gross domestic product (GDP) and their share of gross domestic output. We compare these to two basic estimates of technology use — the share of technology spending in final domestic demand and the share of technology spending in total domestic demand (which includes spending on final goods and services and production inputs). The paper also presents comprehensive estimates of ICT spending in different economic sectors.

Our tabulations inform a series of basic questions about the size and composition of Canada's ICT economy. We address several of these below.

What share of domestic economic activity is accounted for by technology producers? Are estimates of the importance of technology producers sensitive to measurement?

An industry's value-added is the unduplicated value of the goods and services that it produces, that is, its contribution to GDP. Statistics on value-added provide one means of assessing the relative importance of technology-based production. In 1997, the set of ICT-producing industries examined in this paper accounted for 3.8% of total GDP. This share increased to 4.6% in 2000, and declined to 4.2% in 2003. The high-tech boom and bust was limited to manufacturing, as ICT manufacturers made a smaller contribution to GDP in the goods sector in 2003 (2.1%) than in 1997 (3.1%). ICT service industries increased their share of service sector GDP from 4.2% in 1997 to 5.2% in 2003.

The relative size of ICT production is similar when it is evaluated against gross output. The share of gross output accounted for by the production of ICT goods and services is qualitatively similar to the GDP shares of technology producers. ICT goods and services accounted for 3.8% of gross output in 1997, 4.4% of gross output in 2000, and 3.6% of gross output in 2003. ICT products made up a much larger share of the gross output of goods in 2000 (4.7%) than in 1997 (3.5%). However, by 2003, the share of goods production accounted for by technology products had fallen well below its 1997 level. By contrast, the share of services output accounted for by ICT services increased from 2000 to 2003.

How much domestic spending is on ICT? Is final spending on technology-based goods and services much different than total spending?

Many studies of the new economy focus on how extensively ICT technologies are being used. This analysis presents two summary statistics that describe the overall size of technology expenditures in the domestic economy. The first is the share of final domestic demand accounted for by ICT goods and services. The second is the share of total domestic demand accounted for by these ICT goods and services. These statistics include expenditures on both domestically produced ICT commodities and foreign-produced ICT commodities.

Final domestic demand is the sum of all domestic spending on final goods and services — the combined total of personal expenditures by consumers, investment expenditures by businesses and current and investment spending by governments. Final purchases of ICT goods and services accounted for 4.2% of final domestic spending in 1997. This grew to 5.1% by 2000, and subsequently fell to 4.4% in 2003. In all years studied, final expenditures on ICT make up a much larger share of final goods spending than final services spending. In 2000, ICT goods amounted to 9.1 % of all final spending on goods. ICT services, by contrast, were only 1.4% of all final spending on services.

Statistics on final expenditures exclude business spending on intermediate inputs — goods and services that are consumed or transformed in the production process. We combine these intermediate expenditures with final expenditures to estimate the total domestic demand for ICT goods and services. This more comprehensive measure basically covers all ICT spending, final or otherwise, by consumers, businesses and governments in the domestic economy. With this measure, the relative importance of technology increases slightly. Spending on ICT goods and services accounted for 4.9% of total spending in 1997, 5.6% in 2000, and 4.7% in 2003. These shares mask large differences between goods and services. In 2000, spending on ICT goods accounted for about 8% of all spending on goods, while purchases of ICT services amounted to about 2% of total spending on services.

Who buys more ICT goods and services? Firms or households?

It depends largely on what types of expenditures are being measured — spending on final ICT goods and services, which includes personal expenditures and business investment, or all spending on ICT goods and services, final or otherwise, which brings business spending on intermediate technology inputs into mix.

Consumers and firms spend roughly equivalent amounts on final ICT goods and services. In 1997, personal expenditures by consumers and investment spending by businesses each accounted for roughly 45% of final technology purchases. Government purchases made up the remaining 10%. By 2003, consumers had increased their share slightly, to 48% of all final spending.

The relative size of business and household spending changes dramatically when business spending on technology inputs — inputs that are consumed or transformed in the production process — are included in the mix. Intermediate spending on ICT inputs accounts for about two-thirds of all technology spending by firms. Consequently, businesses spend about $3 on ICT commodities for every dollar spent by consumers.

How much consumer spending is devoted to ICT? How much business investment is?

Spending on ICT goods and services amounted to 3.3% of all consumer spending in 1997, and 3.6% of all consumer spending in 2003. Spending on ICT assets accounted for a much larger share of business investment (10.4% and 10.5% in 1997 and 2003 respectively).

Which economic sectors are the heaviest users of ICT capital?

Three sectors — manufacturing industries, information and cultural industries, and finance, insurance and real estate industries — together account for about 50% of total ICT spending. Manufacturing firms make the largest outlays on technology-based goods and services (with 29% of the total ICT purchases in 1997, and 20% in 2003).

A different picture emerges when examining the intensity of technology use across industries. In 2003, the information and cultural industries sector, which includes many ICT service industries, allocated the largest percentage of its total spending to ICT goods and services (33%), well ahead of professional, technical and management services, the next most ICT-intensive sector (19%). About 40% of these expenditures on technology in the information and cultural industries is investment spending on technology assets.

Manufacturing re-emerges when the focus shifts from investment to intermediate inputs. Over 80% of ICT purchases in manufacturing are on intermediate production inputs, not technology assets. Moreover, these expenditures on ICT inputs accounted for a sizable share of all intermediate spending on technology in the economy (39% of the economy total in 1997 and 25% in 2003). Despite the size of these intermediate expenditures, manufacturing industries are not the most intensive users of technology inputs, as measured in relation to their total spending on production inputs. ICT production inputs made up only about 5% of all intermediate spending in manufacturing in 1997, and only 3% in 2003. In information and cultural industries, the sector with the highest ratio of technology inputs to total inputs, the rate stood at about 24% in 2003.

View the publication New Economy: Using National Accounting Architecture to Estimate the Size of the High-technology Economy in PDF format.