Getting Aligned. How Adopting Standards Affects Canada s Productivity and Growth

Transcription

1 Geing Aligned. How Adoping Sandards Affecs Canada s Produciviy and Growh Prepared by The Conference Board of Canada Ocober 2015

2

3 Geing Aligned. How Adoping Sandards Affecs Canada s Produciviy and Growh A a Glance Inernaional sudies coninue o provide evidence of he link among sandardizaion, labour produciviy and economic growh. Compaibiliy of producs, qualiy sandards, increased neworks and larger, more efficien scales of producion are some of he underpinnings ha link sandardizaion wih a more efficien economy. From 1981 o 2014, sandardizaion conribued o 7.8 per cen of he growh rae in real GDP and 16.1 per cen of he growh in labour produciviy in Canada. Wihou sandardizaion, by he end of 2014, real GDP would have been $91 billion lower for he examined period. Assuming ha he esimaed impac is consan over ime, sandardizaion conribued roughly $3 billion of he $39 billion increase in real GDP in Briefing Ocober 2015

4 Table of Conens Preface... 3 Abou The Conference Board... 3 Execuive Summary... 4 Mehodology... 8 Findings Conclusion Appendix A: Mehodology and Deailed Empirical Resuls Bibliography The Conference Board of Canada, P age

5 Preface This repor s research was underaken by The Conference Board of Canada wih funding and suppor from he Sandards Council of Canada (SCC). The research was conduced by Naalia Ward, Economis, and Pedro Anunes, Depuy Chief Economis a The Conference Board of Canada. Many hanks are due o SCC saff for heir valuable commens and insighs hroughou he producion of his research repor. In keeping wih Conference Board guidelines for financed research, he design and mehod of research, as well as he conen of his repor, were deermined solely by he Conference Board. This briefing is an updae o he Conference Board s July 2007 research repor eniled Economic Value of Sandardizaion. Abou The Conference Board The Conference Board of Canada is he foremos independen, no-for-profi, applied research organizaion in Canada. We help build leadership capaciy for a beer Canada by creaing and sharing insighs on economic rends, public policy issues, and organizaional performance. The Board s Economic Forecasing and Analysis division employs more han 40 professional economiss, who combine heir knowledge across regions and secors o producing heir forecass. The forecasing group consrucs and mainains economeric models of he naional and regional economies and a one-of-akind, comprehensive quarerly daabase of he provincial economies in Canada. The Conference Board of Canada was esablished in 1954, and is affiliaed wih he U.S.- based Conference Board, Inc., which serves some 2,000 companies in 60 naions. The Conference Board of Canada, P age

6 Execuive Summary A number of inernaional sudies have concluded ha sandards provide an imporan conribuion o economic growh and efficiency. We apply empirical mehods o examine if he link among he sock of sandards, 1 economic oupu and labour produciviy holds rue for Canada. In an earlier 2007 sudy produced by he Conference Board, we found a srong link among he sock of sandards, labour produciviy and real GDP in Canada. This briefing updaes our 2007 sudy. Economic heory suggess ha here are many ways hrough which he adopion of sandards can boos an economy s efficiency and hus is oupu and labour produciviy. These include improved compaibiliy, he idenificaion of minimum admissible aribues, provision of informaion and produc descripions, he enabling of economies of scale, he faciliaion of inernaional rade, and he promoion of innovaion. While i is imporan o noe ha sandards do no conribue o economic efficiency independen of oher facors, our empirical work demonsraes ha sandards play an imporan role in enhancing labour produciviy and boosing Canada s producive capaciy. We find ha a 10 per cen increase in he sock of sandards is associaed wih a 1.6 per cen increase in labour produciviy (excluding he influence of declining produciviy in he oil and gas exracion secor). Over he sudy period of 1981 o 2014, sandardizaion conribued 16.1 per cen o he growh in labour produciviy. This ranslaes ino approximaely a 7.8 per cen conribuion o he growh in producion, or real GDP. The impac, over ime, of his posiive conribuion is subsanial. Our esimaes sugges ha by he end of 2014, real GDP could have been roughly $91 billion lower had here been no growh in he sock of sandards over he pas hree decades. Assuming ha he esimaed impac is consan over ime, sandardizaion conribued roughly $3 billion of he $39 billion increase in real GDP in Based on he analysis, a 1 per cen increase in he sock of sandards would have added $2.4 billion o real GDP in See page 10 for a definiion. The Conference Board of Canada, P age

7 Wha Is a Sandard? Sandards are basic infrasrucure of he 21 s -cenury knowledge economy. Sandards cover a wide specrum of documens, from definiions, classificaions, manufacuring echniques, processes, delivery sysems, and beyond. They se ou requiremens, specificaions, guidelines or characerisics ha can be consisenly applied o ensure ha producs, maerials, processes, and services perform as inended in erms of heir qualiy, safey, and efficiency. Sandards are developed by consensus and approved by a recognized body. Hundreds of housands of inernaional sandards, and many housands more a he naional level, underpin he global economy. Pu simply, hey make hings work, help innovaions spread, and faciliae rade among provinces, counries, and economic regions. 2 In Canada, he Sandards Council of Canada (SCC) is he federal Crown corporaion wih he mandae o promoe efficien and effecive volunary sandardizaion in Canada. SCC does no develop sandards; raher, i accredis Sandards Developmen Organizaions (SDOs). 3 In his capaciy, SCC leads and faciliaes he developmen and use of naional and inernaional volunary sandards and accrediaion services in order o enhance Canada's compeiiveness and well-being. 4 The developmen and use of Canadian sandards, along wih aligning our naional sandards wih inernaional and regional sandards, helps reduce echnical barriers o rade, inernally and inernaionally, and promoe economic growh in our counry. 2 Source: Sandards Council of Canada. 3 Source: Sandards Council of Canada. 4 Sandards Council of Canada. Mandae, Mission and Vision. The Conference Board of Canada, P age

8 The Naional Sandards of Canada Developmen Process Sandards Developmen Organizaions (SDOs) convene echnical commiees consensus-based bodies of individuals represening a mix of ineress, experise and jurisdicions from indusry, consumer groups, regulaory bodies and oher sakeholders. In drafing sandards, commiee members ensure ha sandards mee relevan echnical specificaions and perform as required. Draf sandards are publicly posed for 60 days and commens received are used o refine he documens. The developmen process can be lenghy, aking from nine monhs o several years, depending on a sandard s complexiy and coneniousness. To obain he Naional Sandards of Canada (NSC) designaions, an accredied SDO mus subsaniae ha SCC developmen requiremens have been me. If approved, he SDO is noified i may publish he sandard as an NSC. Approval indicaes ha a sandard has been: developed hrough a consensus-based process involving a balanced commiee of sakeholders; subjeced o public scruiny; published in boh official languages; drafed o be consisen wih or incorporae exising inernaional or relevan foreign sandards; and deermined no o be a barrier o rade. NSCs coninually evolve, subjec o ongoing and ofen close scruiny ha may lead o reaffirmaion, revision, or wihdrawal. All sandards mus undergo a leas one formal review wihin five years of publicaion. This review and revision cycle ensures sandards are in sep wih changes in echnology, healh and safey regulaions, and markes, and coninue o comply wih inernaional norms and World Trade Organizaion pracice. Source: Sandards Council of Canada. The Impac of Sandards on Economic Growh and Produciviy Economic heory and empirical sudies 5 provide evidence ha sandardizaion has economic benefis. Globalizaion and he heighened need o develop compaible 5 BSI, 2015, DTI, 2005, DIN, 2000, AFNOR, 2009 and ohers. The Conference Board of Canada, P age

9 neworks have increased he poenial economic benefis of sandardizaion, while he developmen of daa on sandards has made i possible o measure heir benefis. In heory, compaibiliy emerges as one of he mos significan reasons for he evoluion of sandardizaion. 6 Clearly, compaible producs, processes, and measuremen sysems should resul in efficiency gains. To make he case, we can imagine a world where railway racks change widh as hey cross borders, or where brands deermine he design of elecric sockes perhaps an inefficiency ha hose who have ravelled inernaionally can relae o. The keyboard s QWERTY key placemen is anoher clear example of compaibiliy; 7 i is obviously much more efficien for everyone o work wih he same sandard. Tha said, sandardizaion can, in some insances, hinder change o more efficien sysems. The keys placemen was originally inended o slow yping in order o preven keys in mechanical ypewriers from geing suck. Today more efficien compuer keyboard designs are available, bu how o make he swich? A second raionale for he exisence of sandards is o provide minimum admissible aribues, for example, safey sandards or minimum qualiy sandards. Sandards conribue o building rus and reducing risks among producers and consumers; his is largely accomplished hrough he use of hird-pary conformiy assessmens. Anoher reason for he developmen of sandards is o reduce variey, which enables organizaions o ake advanage of economies of scale. And inernaionalized sandards can poenially boos inernaional rade by improving compaibiliy, produc informaion and measuremen no o menion geing merchandise across borders wihou having o unload and reload railway cars. In our 2007 sudy, a number of inerviews wih execuives of companies, SDOs, rade associaions and governmen deparmens in Canada provided qualiaive evidence of he benefis of sandardizaion. Inerviewees were vocal abou he benefis of paricipaing in he sandards developmen process. Inerview resuls sugges ha sandardizaion is he basis for coninuous improvemen, innovaion and new produc developmen; ha i helps o esablish a level playing field and bolser consumer confidence and rus in he producs. Respondens also suggesed ha sandards play 6 David, P. and Greensein, S. (1990). 7 David (1985). The Conference Board of Canada, P age

10 an imporan role in improving produciviy, faciliaing rade and new marke developmen as well as conribuing o improved public safey. Recen empirical sudies have concluded ha sandards have had a posiive impac on he economy and conribue o improving labour produciviy. 8 The firs comprehensive sudies 9 in his area were performed by Jungmiag, Blind, and Grupp (1999) using German daa from 1961 o 1996, and he Briish Deparmen of Trade and Indusry (DTI [2005]) using Briish daa from 1948 o Boh of hese sudies begin wih he premise ha sandards may be an imporan facor in deermining aggregae economic aciviy and, as a resul, produciviy growh. 10 The Jungmiag, Blind, and Grupp (1999) sudy finds ha he collecion of sandards has played an imporan role in explaining long-run movemens in economic oupu of he German business secor. The DTI (2005) sudy finds ha he collecion of sandards played an imporan role in explaining longrun movemens in Briish labour produciviy (oupu per hour worked). The auhors, however, urge cauion in inerpreing he resuls, since sandardizaion does no ac independenly of oher facors. Sandardizaion acs in combinaion wih oher facors such as research and developmen (R&D) o caalyze innovaive aciviy and generae gains in produciviy. As already noed, he link beween sandards and innovaion is enuous as here is some evidence ha sandardizaion can boh encourage and hinder innovaion. 11 Mehodology To esimae he economic impac of sandards on labour produciviy, we used an empirical model similar o wha we developed for our 2007 sudy. The model is based on he assumpion ha he economy can be represened by an aggregae producion funcion, much like ha of an individual firm. Economic oupu (or real GDP) can be 8 BSI (2015), DTI (2005), DIN (2000), AFNOR (2009), and ohers. 9 Boh sudies have since had follow-up esimaions confirming heir original resuls (while exending heir sample sizes). 10 Haimowiz and Warren (2007). 11 Blind K. (2013). The Conference Board of Canada, P age

11 explained by he sock of producive capial, he amoun of available labour and he efficiency wih which hese facors of producion generae oupu. The measure of efficiency is referred o as mulifacor produciviy. The purpose of he research was o assess wheher he sock of sandards has an impac on he efficiency (mulifacor produciviy) of he economy. And if so, wha is he conribuion of his gain in efficiency o economic oupu and o labour produciviy (or oupu per hour worked). Gains in produciviy are essenial o helping an economy grow is income and wealh and allow Canadian firms o remain compeiive in a global marke. The daa on he number of sandards over ime was provided by he Sandards Council of Canada in cooperaion wih four of he eigh SCC-accredied Sandards Developmen Organizaions (SDOs): 12 Bureau de normalisaion du Québec (BNQ), Canadian General Sandards Board (CGSB), CSA Group and ULC Sandards. The four SDOs no included in his sudy were accredied in 2013 and These newly accredied SDOs have no published sandards under SCC s accrediaion in he period examined in his sudy. I is imporan o noe ha in Canada, SDOs do no solici developmen opporuniies nor deermine wha sandards should be developed. Consumer organizaions, rade, and indusry associaions, governmen deparmens or ohers, who see a need for a sandard, submi a proposal o whichever organizaion has he mos experise in a relevan produc, process or service area. SDO saff sor he level of ineres in he subjec area, and deermine wheher oher organizaions are working on such iems already, he exen of suppor, and where a new sandard migh fi in heir enerprise s caalogue. Technical commiees hen decide if a sandard should be developed and proceed accordingly. Therefore, he sock of sandards developed by SCC-accredied SDOs reflecs he demand for sandards soluions. 14 Consequenly, he sock of sandards is used as a proxy o represen he aciviies in he sandardizaion sysem. 12 In addiion o he NSCs and consensus SDO sandards used in his sudy, Canadian indusry and regulaors use sandards developed by oher organizaions in oher counries along wih hose developed by inernaional sandard developmen organizaions. 13 The newly SCC-accredied SDOs are Air-Condiioning, Heaing & Refrigeraion Insiue, Underwriers' Laboraories Inc., and ASTM Inernaional accredied in 2013, and NSF Inernaional accredied in Sandards Council of Canada. The Conference Board of Canada, P age

12 In his sudy, we include he following documens as par of he sock of sandards: new sandards, new ediions of sandards, adopions of inernaional sandards, and Oher Recognized Documens (ORDs). An ORD is defined as a documen developed by a cerificaion body, in he absence of a recognized Canadian sandard, in order o esablish safey and performance crieria for a new produc. The ORD is inended o provide Regulaory Auhoriies and indusry associaions wih assurance ha a level of safey or performance, which is equal o ha of exising sandards for similar funcions, is being mainained. An ORD mus be acceped by he applicable Regulaory Auhoriy or appropriae indusry associaion(s) in order o gain validiy. 15 ORDs are an imporan par of he Canadian sandardizaion sysem as hey are ofen creaed o respond o an emerging need when a sandard does no exis. We deermined he number of sandards in exisence in any one year as follows: NNNNNN oo SSSSS sssssssss oo = + ii sssssssss he pppppppp yyyy NNNNNN oo nnn sssssssdd iiiiiiiiii NNNNNN oo sssssssss wwwhddddd The daa provided by he SCC allowed for consrucing daa on he sock of sandards over ime, from 1981 o (See Char 1.) 15 Sandards Council of Canada. The Conference Board of Canada, P age

13 Char 1: Toal Sock of Sandards (Toal sock of sandards, ) 5,400 5,200 5,000 4,800 4,600 4,400 4,200 4,000 3,800 3,600 3,400 Sources: Sandards Council of Canada; The Conference Board of Canada. The aggregae producion funcion allows us o derive he wo sources ha conribue o overall labour produciviy growh. Essenially hese are growh in mulifacor produciviy and capial deepening. Capial deepening is arguably easier o undersand as i represens an increase in he amoun of producive capial per worker. On he oher hand, mulifacor produciviy represens how efficien we are in combining labour and capial o produce oupu. Because mulifacor produciviy is so imporan in deermining long-erm economic growh, volumes of lieraure examine wha facors may affec i. Mulifacor produciviy is iself divided ino wo pars: knowledge and efficiency. Sandards play a role in boh hese pars. Togeher wih facors such as paens, research and developmen, and impors of foreign echnology, sandards migh have an impac on levels of knowledge or echnological capaciy. Sandards, along wih improvemens in physical infrasrucure and srucural shifs in he economy such as The Conference Board of Canada, P age

14 labour mobiliy beween indusries, are an inegral par of Canada s abiliy o produce goods and services. This research examined various empirical relaionships o esablish wheher he sock of Canadian sandards, as repored by he SCC-accredied SDOs, has had an impac on Canada s mulifacor produciviy. The analysis can be done direcly on our esimaes of mulifacor produciviy or, as in much of he lieraure, indirecly on labour produciviy, which is more measurable. 16 Since labour produciviy is defined by mulifacor produciviy and capial deepening, we can es, empirically, he relaionship among labour produciviy, he sock of sandards, and he raio of he producive capial sock in he economy o employmen. In addiion, oher variables, including a ime rend, can help o conrol for oher deerminans of mulifacor produciviy. The macroeconomic daa used in he analysis comes from Saisics Canada. 17 We calculaed he measure of labour produciviy used as a raio of oal real GDP o he oal number of hours worked. To creae he capial-o-labour raio, we divided a measure of he capial sock by a measure of he quaniy of labour. We used he hyperbolic end-of-year ne sock of non-residenial capial 18 for all indusries measured in chained 2007 dollars as a measure for capial sock. The quaniy of labour variable used was oal hours worked by all persons 15 years and over in all indusries. Our mehodology looked a boh he impac of sandards on he oal economy, as well as on he Canadian economy excluding he oil and gas exracion secor. We exclude oil and gas exracion because produciviy in his secor is being affeced by a unique se of circumsances leading o he mauring convenional oil and gas indusry and he ransformaion o non-convenional exracion. 19 The share of non-convenional oil and 16 Mulifacor produciviy is no direcly observable; i has o be esimaed based on a fixed (bu unknown) represenaion of he aggregae producion funcion. As such, sudies end o focus on he link beween sandards and labour produciviy, which, along wih capial deepening, are direcly observable. 17 Saisics Canada, Tables , , Table (accessed in Sepember, 2015). 18 Hyperbolic end-of-year ne sock was chosen because we feel i bes represens he producive capaciy of asses. Hyperbolic depreciaion akes he greaes amoun of value from an asse nearer o he end of is useful life. 19 Naural Resources Canada. The Conference Board of Canada, P age

15 gas producion increased from 22 per cen in 2007 o 34 per cen in This ransformaion has resuled in a subsanial decline in produciviy in oil and gas exracion ha could be independen from he growh in he sock of sandards ha applies o his indusry. Labour produciviy (oupu per hours worked) in oil and gas exracion increased on average 3.2 per cen compounded annually over ; however, labour produciviy in oil and gas exracion fell on average 0.5 per cen compounded annually over (See Char 2.) Char 2: Labour Produciviy in Oil and Gas Exracion: Uneven Trend (Labour produciviy in oil and gas exracion, millions $2007 per oal hours worked, ) Sources: Saisics Canada; The Conference Board of Canada. In addiion, he oil and gas exracion indusry is influenced largely by Norh American sandards ofen developed in he Unied Saes. 21 A 2013 SCC sudy of he secor 20 Saisics Canada, Table In Canada, CSA is he leading SDO conribuing o sandard developmen in he oil and gas secor. Ouside of Canada, he American Peroleum Insiue (API), followed by ASTM Inernaional, are wo key The Conference Board of Canada, P age

16 concluded ha approximaely only 3 per cen of he sandards developed by SCCaccredied organizaions affec his secor. 22 As such, he relaionship we are esing is consisen in ha i largely excludes oil and gas sandards in he measure of he sock of sandards and i excludes oil and gas producion, labour and capial in he aggregae producion funcion. Findings Over he 1981 o 2014 ime period, he number of sandards rose on average 1.2 per cen per year in comparison o real GDP growh ha averaged 2.5 per cen annually. As a firs sep, we examined he relaionship beween he sock of sandards and he economy as a whole. The esimaion resuls for he coefficiens in he labour produciviy equaion show ha he elasiciy of labour produciviy wih respec o he sock of sandards equals and is found o be saisically significan. 23 (See Appendix A, Table 1.) This suggess ha a 10 per cen increase in he number of sandards would lead o a 0.48 per cen increase in labour produciviy (oupu per hour worked) and ha sandards play an imporan role in enhancing labour produciviy in Canada. We hen repeaed he analysis excluding he oil and gas secor from GDP, employmen, he capial sock and labour produciviy. As expeced, his esimaion provided more robus resuls. 24 In his case, he elasiciy of labour produciviy wih respec o he sock of sandards is and is found o be saisically significan. This suggess ha a 10 per cen increase in he number of sandards resuls in a 1.58 per cen increase in labour produciviy in he economy, excluding oil and gas exracion. Assuming ha he esimaed impac is consan over ime, sandardizaion conribued $3 billion o real conribuors o sandard developmen in he oil and gas secor. (See page 8). Sandards Council of Canada (2013). 22 Sandards Council of Canada (2013). 23 This compares o in our previous sudy. The exension of he daa from 2004 o 2014 affecs resuls. As discussed, we believe ha he oil and gas exracion secor, which suffered a rapid decline in produciviy over he pas decade, is significanly influencing resuls over he period analyzed. 24 Appendix A discusses deailed resuls. The Conference Board of Canada, P age

17 GDP in (See Appendix A, Table 2.) Table 1 presens abbreviaed esimaion resuls for he wo pars of he sudy, comparing esimaed elasiciy for he economy as a whole and excluding oil and gas exracion as well as our previous sudy (2007). (See Table 1 and Table 2.) 25 Table 1: Esimaed Elasiciy of Labour Produciviy: Economy as a Whole (All Indusries), Economy Excluding Oil and Gas, Conference Board 2007 Sudy (Economy, All Indusries) Elasiciy wih respec o Sock of Sandards All indusries Excluding oil and gas exracion 2007 sudy (all indusries) Capial-o-Labour Raio Sources: Saisics Canada; The Conference Board of Canada. Table 2: Average Conribuion of Sandards o Growh in Labour Produciviy and Real GDP: Percenage Poins Conribuion All indusries Average GDP and labour produciviy conribuion (percenage poins) Sources: Saisics Canada; The Conference Board of Canada. Excluding oil and gas exracion 2007 sudy (all indusries) Excluding oil and gas exracion, on average, growh in he number of sandards conribued 0.21 percenage poins o growh in labour produciviy (oupu per hour worked) and economic oupu (real GDP, excluding oil and gas secor). Alernaively, growh in he number of sandards accouned for 15.7 per cen of he growh in labour produciviy and abou 8.3 per cen of he growh rae in economic oupu (real GDP), excluding oil and gas exracion, over he 1981 o 2014 period I should be noed ha our previous sudy had a much shorer sample period (1981 o 2004) and as a resul did no capure he decline in labour produciviy associaed wih he shif in oil and gas exracion from convenional o non-convenional o he same degree as our curren sudy does. 26 For impac calculaions, please see Appendix A. The Conference Board of Canada, P age

18 To calculae he impacs of he growh in he sock of sandards on oal GDP and labour produciviy he esimaion resuls from he more robus specificaion (excluding he oil and gas secor) are applied o he overall economy. Over he sudy period of 1981 o 2014, sandardizaion conribued o 16.1 per cen of he growh of oal labour produciviy and 7.8 per cen of he growh of real GDP (including all indusries). To pu i in perspecive, our esimaes sugges ha by he end of 2014, real GDP could have been roughly $91 billion 27 (-5.6 per cen) lower had here been no growh in he sock of sandards over he pas hree decades. Assuming ha he esimaed impac is consan over ime, sandardizaion conribued roughly $3 billion of he $39 billion increase in real GDP in Alernaively, a 1 per cen increase in he sock of sandards would have added $2.4 billion o real GDP in Conclusion Long-erm economic growh can be modelled using an aggregae producion funcion in which capial, labour and mulifacor produciviy deermine real GDP. Mulifacor produciviy is he efficiency in which capial and labour mix o produce oupu. Many facors are hough o conribue o mulifacor produciviy including research and developmen, innovaion, adopion of echnology and ohers. In his sudy we find empirical evidence of he link beween he sock of sandards in Canada and mulifacor produciviy over he 1981 o 2014 period. I may well be ha he sock of sandards is no independen of oher facors ha influence efficiency gains in he economy. We do find, as do oher inernaional sudies, ha growh in he sock of sandards has been an imporan conribuing facor o labour produciviy and oal real GDP growh in Canada. 27 We calculaed he cumulaive moneary impac on oal GDP as a difference beween real GDP and expeced real GDP calculaed wihou he effec of sandards. (See Appendix A for deailed calculaions.) The Conference Board of Canada, P age

19 Appendix A: Mehodology and Deailed Empirical Resuls The empirical model used in his analysis is similar o he aggregae model used in our previous sudy. The model is based on he assumpion ha aggregae economic oupu can be represened by a producion funcion ha akes he following form: Q α ( 1 α ) = A K L, Where oupu for he economy is deermined as a ( Q ) a non-linear funcion of mulifacor produciviy ( A ), he capial sock ( K ), and he quaniy of labour ( L ). In his producion funcion capial and labour inpus are combined o produce oupu. The abiliy of capial and labour o produce oupu is augmened by he level of echnology and efficiency in he economy ha is capured in he mulifacor produciviy erm. The relaionship can be shown in he following equaion: CCCCCCCCCCCC CCC LLLLLL oo oo = + PPPPPPPPPPPP MMMMMMMMMMM CCCCCCC PPPPPPPPPPPP DDDDDDDDD Capial deepening represens an increase in he amoun of capial per worker. Mulifacor produciviy is iself divided ino wo pars: knowledge and efficiency. Sandards, paens, research and developmen, and impors of foreign echnology are some facors ha have an impac on knowledge or echnological capaciy. Sandards, improvemens in infrasrucure and srucural shifs in he economy such as labour mobiliy among indusries are some facors ha have an impac on he level of efficiency in he economy. Sandards can hus poenially play an imporan role in enhancing mulifacor produciviy. In his sudy mulifacor produciviy is modeled as a funcion of ime and he number of sandards. Mulifacor produciviy is assumed o ake he funcional form: A = exp( λt ) STA ε where T is a ime rend vecor and STA is he number of sandards in year. The Conference Board of Canada, P age

20 These assumpions on he producion funcion and mulifacor produciviy yield he following model for labour produciviy: ln( Q / L ) = β + α ln( K / L ) + lt + ε ln( STA ) + u (Equaion 1) In his model ln( Q / L ) is he naural logarihm of labour produciviy, ln( K / L ) is he naural logarihm of capial-o-labour raio ha capures capial deepening, T is a ime rend vecor, STA is he number of sandards, and u is an error erm. The firs sep in he analysis is o examine he individual variables hemselves o deermine wheher or no hey exhibi sochasic (or random) rends. The choice of esimaion mehod depends upon wheher or no he variables exhibi sochasic rends. Labour produciviy, he capial-o-labour raio, and he number of sandards all exhibi sochasic rends, indicaing ha he coinegraion echniques firs developed by Engle and Granger (1987) are he appropriae ones o use for he analysis. 28 Esimaing long-run models such as he one given in Equaion 1, where he variables have sochasic rends, may lead o incorrec conclusions abou he significance of he relaionship among he variables of ineres. Engle and Granger (1987) proposed a widely acceped mehodology o deermine wheher he resuls from esimaing a longrun model, in which he variables have sochasic rends, are meaningful. In he firs sep, a long-run model, such as he one given in Equaion 1, is esimaed. The residuals or errors from he esimaion, in his case u, are hen esed using an Augmened Dickey-Fuller (ADF) es o see wheher hey conain sochasic rends. If hey do no conain sochasic rends, hen he conclusions based upon he esimaion resuls can be considered meaningful. The resuls from esimaing Equaion 1 are presened in Table 1 below. 28 Augmened Dickey-Fuller ess were performed on he naural logarihms of labour produciviy, he capial-o-labour raio, and he sock of sandards. These ess included a consan and a linear rend. Because of he shor lengh of he ime series, a lag lengh of 1 was chosen. In all cases he ess were unable o rejec he null hypohesis of a uni roo (i.e., he presence of a sochasic rend) a he 10 per cen level. The Conference Board of Canada, P age

21 Table 1: Esimaion Resuls, Toal Indusries (in logarihms) Sample: 1981 o 2014 Mehod: Leas Squares Variable Coefficien Sd. Error T-Saisic P-Value LOG (sandards) LOG (capial-o-labour raio) Time rend AR(1) Adjused R-squared Durbin-Wason saisic ADF es of he residual P-value for he ADF es Noes: a) Sandards errors are Whie heeroskedasiciy-consisen. b) The P-Value represens he degree of cerainy wih which we can rejec he hypohesis ha he variable has no impac on labour produciviy. c) The ADF es of residual included a consan, and lag lenghs were chosen using he Schwarz Informaion Crieria. Source: The Conference Board of Canada. The ADF es of he residual repored near he boom of he able indicaes ha he residuals from he model do no conain sochasic rends. This suggess ha he resuls obained from esimaing he model are no spurious. Boh capial deepening, as measured by he capial-o-labour raio, and he exising number of sandards have a significanly posiive impac on labour produciviy. The second par of he sudy sough o examine wheher he same relaionship beween sandards and labour produciviy holds once we remove he oil and gas exracion secor. We used he same srucure of he equaion. However, we calculaed real GDP, capial sock and oal hours worked as a oal less he values for he oil and gas exracion secor for each series. Saisics Canada daa on he capial sock in he oil and gas secor exended only o To exend he sample size o 2014, we grew ou he oil and gas exracion secor capial sock wih he growh rae of he hyperbolic end-of-year ne capial sock of engineering and mining. To calculae oal hours worked excluding he oil and gas secor, we used a proxy. Toal hours for oher primary indusries (which includes foresry, fishing, mining, The Conference Board of Canada, P age

22 quarrying, oil and gas indusries) was used as oal hours for only he oil and gas secor. We derived he proxy as follows: TTTTT HHHHH TTTTT HHHHH WWWWWW = WWWWWW EEEEEEE eeeeeeeee OOO aaa GGG AAA IIIIIIIIIs TTTTT HHHHH WWWWWW ii Oher Primary IIIIIIIIII The sample period for he resuling series spanned 1987 o In order o line up he series wih oher variables, a growh rae from he oal hours worked for he enire economy was applied o o creae he oal hours worked in he economy excluding oil and gas secor for ha period of ime. In addiion, we used a variable represening echnology use (calculaed as a share of capial sock associaed wih inellecual propery in oal capial sock) o esimae impacs in economy wihou he oil and gas exracion. Table 2 shows he resuls. Table 2: Esimaion Resuls, Economy Excluding Oil and Gas Secor (in logarihms) Sample: 1981 o 2014 Mehod: Leas Squares Variable Coefficien Sd. Error T-saisic P-Value LOG (sandards) LOG (capial-o-labour raio) LOG (IP raio) Time rend Adjused R-squared Durbin-Wason saisic ADF es of he residual P-value for he ADF es Noes: a) Sandards errors are Whie heeroskedasiciy-consisen. b) The P-Value represens he degree of cerainy wih which we can rejec he hypohesis ha he variable has no impac on labour produciviy. c) The ADF es of residual included a consan, and lag lenghs were chosen using he Schwarz Informaion Crieria. Source: The Conference Board of Canada. The Conference Board of Canada, P age

23 I is imporan o cauion ha due o he small sample size (34 observaions), esimaion resuls were vulnerable o variaions in esimaion specificaion. The difference in resuls beween oal indusries and economy excluding oil and gas suggess ha produciviy in he oil and gas exracion secor has been srongly affeced by facors oher han sandards, and ha once ha secor s influence is removed, we can observe a much sronger impac. Box: Addiional Specificaion o Conrol for he Shif in Oil and Gas Exracion from Convenional o Non-Convenional For he purpose of conrolling for he shif from convenional oil and gas exracion o nonconvenional and he resuling decline in labour produciviy, we esimaed a differen equaion specificaion. We used wo dummy variables o conrol for he shif, wih one variable accouning for he increase in labour produciviy up o 1999 (Trend 2) and he second one conrolling for he declining produciviy from 2000 o 2014 (Trend 1). The esimaed elasiciy of labour produciviy is similar o he esimaes excluding he oil and gas secor. However, i is imporan o noe ha Trend 1 can be considered saisically significan only a 35.5 per cen and Trend 2 a 21.6 per cen. Sample: 1981 o 2014 Mehod: Leas Squares Variable Coefficien Sd. Error T-saisic P-Value LOG (sandards) LOG (capial-o-labour raio) Trend Trend AR(1) Adjused R-squared Durbin-Wason saisic ADF es of he residual P-value for he ADF es Noes: a) Sandards errors are Whie heeroskedasiciy-consisen. b) The P-Value represens he degree of cerainy wih which we can rejec he hypohesis ha he variable has no impac on labour produciviy. c) The ADF es of residual included a consan, and lag lenghs were chosen using he Schwarz Informaion Crieria. Source: The Conference Board of Canada. The Conference Board of Canada, P age

24 Over he sudy period of 1981 o 2014, sandardizaion conribued o 16.1 per cen of he growh rae of oal labour produciviy and 7.8 per cen of he growh of real GDP. To pu i in perspecive, our esimaes (using elasiciy of and applying i o he oal real GDP) sugges ha by he end of 2014, real GDP could have been roughly $91 billion (-5.6 per cen) lower had here been no growh in he sock of sandards over he pas hree decades. We calculaed he conribuion o labour produciviy and real GDP as follows: AAAAAAA CCCCCCCCCCCC AAAAAAA EEEEEEEE = / GGG IIIIII oo GGG GGGGGh GGGGGh RRRR AAAAAAA EEEEEEEE IIIII oo GGGGGh RRRR = 33 =1 SSSSSSSSS EEEEEEEEEE GGGGGh w. r.. SSSSSSSSS 33 is he oal number of years available for growh calculaion ( ). GGGGGh ii CCCCCCCCCCCC = RRRR GGG gggggh GGG IIIIIIIII SSSSSSSSS The Conference Board of Canada, P age 33 GGGGGh GGGGGh ii ii RRRR RRRR / GGG GGG WWWhooo IIIIIIIII SSSSSSSSS SSSSSSSSS GGGGGh GGGGGh GGGGGh CCCCCCCCCCCC ii ii ii LLLLLL = LLLLLL LLLLLL LLLLLL / PPPPPPPPPPPP PPPPPPPPPPPP PPPPPPPPPPPP PPPPPPPPPPPP IIIIIIIII WWWhooo IIIIIIIII GGGGGh SSSSSSSSS SSSSSSSSS SSSSSSrdd Growh raes were calculaed over as average annual compound growh raes. Assuming ha he esimaed impac is consan over ime, sandardizaion conribued roughly $3 billion of he $39 billion increase in real GDP in We derived he effec as follows:

25 IIIIII oo RRRR GGG CCCCCCCCCCCC = GGG GGGGGh RRRR GGG GGGGGh where indicaes a given year. Based on he analysis, a 1 per cen increase in he sock of sandards would have added $2.4 billion o real GDP in The value of he impac on real GDP was calculaed as follows: EEEEEEEEE IIIIII EEEEEEEEEE oo RRRR GGG oo ffff SSSSS oo S = GGG 1% iiiiiiii CCCCCCCCCCCC ii GGG GGGGGh SSSSS oo SSSSSSSSS The Conference Board of Canada, P age

26 Bibliography AFNOR, The Economic Impac of Sandardizaion: Technological Change, Sandards Growh in France, June [accessed Sepember 2015] hp://groupe.afnor.org/economic-impac-sandardizaion/appli.hm?ongle=&page= Akerlof G. The Marke for Lemons : Qualiy, Uncerainy and he Marke Mechanism. Quarerly Journal of Economics 84 (Augus 1970): Arhur W.B. Compeing Technologies, Increasing Reurns, and Lock-In By Hisorical Evens. The Economic Journal 99 (March 1989): Barry P.L. Meric Moon. Science@NASA. (January 8, 2007) [accessed Sepember 2015]. hp://science.nasa.gov/headlines/y2007/08jan_mericmoon.hm. Blind K., Jungmiag A. Trade and he Impac of Innovaions and Sandards: The Case of Germany and he UK. Applied Economics 37 (July 2005): Blind K. The Impac of Sandardizaion and Sandards on Innovaion, NESTA working paper No. 13/15. (November 2013) [accessed Sepember 2015]. hps:// dards_on_innovaion.pdf Cenre for Economics and Business Research and Briish Sandards Insiue. The Economic Conribuion of Sandards o he UK Economy. (June 2015) [accessed Sepember 2015].hp:// David P. A. Some New Sandards for he Economics of Sandardisaion in he Informaion Age. Ch. 8 of P. Dasgupa and P. Soneman (eds.) Economic Policy and Technological Performance. Cambridge: Cambridge Universiy Press, David P. A. Clio and he Economics of QWERTY. The American Economic Review 75 no. 2 (May 1985): David P., Greensein S. The economics of compaibiliy sandards: An inroducion o recen research. Economics of Innovaion and New Technology 1 (1990): The Conference Board of Canada, P age

27 Deparmen of Trade and Indusry. The Empirical Economics of Sandards. DTI Economics Paper no. 12, June DIN German Insiue for Sandardizaion. Economic Benefis of Sandardizaion. Summary of Resuls. Final Repor and Pracical Examples. Berlin, Vienna, Zurich: Beuh Verlag, Engle R.F., Granger C.W.J. Co-inegraion and Error Correcion: Represenaion, Esimaion, and Tesing. Economerica 55: Farrell J., Saloner G. Insalled Base and Compaibiliy: Innovaion, Produc Preannouncemens, and Predaion. The American Economic Review 76 no. 5, (1986): Farrell J., Saloner G. Sandardizaion, Compaibiliy, and Innovaion. RAND Journal of Economics 16 no. 1 (Spring 1985): Haimowiz J., Warren J. Economic Value of Sandardizaion. The Conference Board of Canada, Jones P., Hudson J. Sandarizaion and he Coss of Assessing Qualiy. European Journal of Poliical Economy 12 (1996): Jungmiag A., Blind K., Grupp H. Innovaion, Sandardisaion and he Long-erm Producion Funcion: A Coinegraion Analysis for Germany Zeischrif für Wirsschafs- und Sozialwissenschafen 119 (1999): Maues C., Regibeau P. A Selecive Review of he Economics of Sandardizaion: Enry Deerrence, Technological Progress, and Inernaional Compeiion. European Journal of Poliical Economy 12 (Sepember 1996): Murphy C.N., Yaes J. The Inernaional Organizaion for Sandardizaion (ISO): Global Governance hrough Volunary Consensus, Rouledge, London, Naural Resources Canada. Energy Markes. Fac Book [accessed Sepember 2015]. hp:// The Conference Board of Canada, P age

28 Sandards Council of Canada. Proposed Sandardizaion Soluions Supporing Oil and Gas Secor Prioriies. (2013) [accessed Sepember 2015]. hps:// Gas_Secor_Profile_Final.pdf Sandards Council of Canada. [accessed Sepember 2015]. hps:// Saisics Canada. Cansim Tables , , Table [accessed in Sepember, 2015]. hp://www5.sacan.gc.ca/cansim/homeaccueil?lang=eng&p2=50&hpa Swann G.M.P. The Economics of Sandardizaion. Final Repor for Sandards and Technical Regulaions Direcorae, Deparmen of Trade and Indusry, London, The Conference Board of Canada, P age

29