Public infrastructure and the performance of the Canadian economy

Canada's $157.3 billion in publicly-owned infrastructure - roads, mass transit, water supplies, wastewater treatment facilities and so on - has a tangible impact on the productivity and the economic performance of the Canadian business sector, according to two new studies.

Public infrastructure, or "public capital," lowers the costs of producing a given level of output in virtually every Canadian industry within the business sector, the studies found.

In doing so, gains in infrastructure have had a modest, but direct, impact on productivity, which represents the output for every unit of labour and capital employed in production.

During the past 40 years, growth in infrastructure has accounted for just under one-fifth, about 18%, of multifactor productivity gains in the business sector, a measure of the efficiency with which inputs are used to produce goods and services.

In the simplest terms, a well-constructed highway allows a truck driver to avoid back roads and to transport goods to market in less time. Hence, public investment in a highway enables private companies to produce their products at a lower total cost. This would permit products to be sold at lower prices, and lower prices can be expected to lead to growth in output.

The studies showed that within the business sector as a whole, each $1 increase in net capital stock, or infrastructure, between 1961 and 2000 generated on average about 17 cents of cost-savings each year. The impact varied widely among the 37 industries in the business sector, but each one benefited.

Industries that are the most intensive users of infrastructure incur the biggest savings. For example, a $1 increase in net capital stock during the past four years generated savings of 42 cents for the transportation industry, savings of about 34 cents for the wholesale and retail trade groups, and savings of about 20 cents for the construction industry.

Huge stock of public infrastructure

Canada has a huge stock of public infrastructure. In 2002, it amounted to an estimated $157.3 billion, or about 4% of non-financial capital assets in the economy.

The 2002 estimate was about 17 times the total of just $9.3 billion in 1961, which represented 6.2% of non-financial capital assets in the economy.

Four decades ago, local governments held only 31% of all infrastructure, while the federal government held 24% and the provincial governments, 45%.

In 2002, local governments' share accounted for more than half, while the federal share was down to a modest 6.8%. The share of provincial governments dropped moderately to 40.8%.

In 2000, roads and highways accounted for the largest share of infrastructure for all three levels of government: 69% of the provincial capital assets, 45% among local governments, and 19% for the federal government.

Assets in second place varied widely. Among local governments, it was sanitary sewers, accounting for 17%. For provincial governments, it was bridges (10%), and for the federal government, it was docks, wharves, piers and terminals (13%).

Public infrastructure factor in growth of standard of living

From 1971 to 1979, Canada's standard of living increased 3.02%. However, it slowed down markedly during the following two decades. The growth rate was only 1.9% during the 1980s and 1.5% during the 1990s.

The growth in Canada's standard of living reflects the impact of many factors, two of which are public infrastructure capital productivity and the extent to which public infrastructure capital keeps up with the growth of the Canadian population. These can be measured, respectively, as real gross domestic product per unit of real public infrastructure capital and real public infrastructure capital stock per person.

During the 1990s, public infrastructure per person advanced 0.87%, which was virtually unchanged from the growth rate of the 1980s. This was only about one-half of the 1.7% rate of growth experienced in the 1970s, and reflects the fact that public infrastructure fell short of the population increase.

During the last three decades, the efficiency with which the Canadian economy has used public infrastructure, or real GDP per unit of real public infrastructure capital, has shown a steady slowdown.

Definitions, data sources and methods: survey number, including related surveys, 1402, 1806 and 2820.

The research papers Public infrastructure in Canada: Where do we stand? (11-624-MIE2003005, free) and Public capital and its contribution to the productivity performance of the Canadian business sector (11F0027MIE2003017, free) are now available online. To access the Analytical Studies Research Paper Series, select Studies from the home page, then, under Browse periodical and series, choose Free and for sale; under Series select Analytical studies.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Tarek M. Harchaoui (613-951-9856; fax: 951-951-3292; harctar@statcan.gc.ca), Micro-Economic Analysis Division.