What is this metric and why is it important?
Information and communications technology (ICT) investments are expenditures made by organizations to purchase or develop a range of digital goods. Such investments are both enablers of innovation and applications of already existing technological innovations that can benefit organizations. We report ICT as a percentage of GDP to allow for comparison among different-sized economies.
How is Canada doing?
- In 2015, Canada’s ICT investment of 2.1% as a share of GDP was below the OECD level of 2.2%, and well-below the United States’ 3.1%.
- From 2000 to 2007, ICT investment declined in Canada and all but one G7 country. ICT investment rebounded in the United States, France, United Kingdom, and Italy from 2008 to 2015, but fell in Germany, Japan, and Canada.
- In 2018, ICT investment was substantially higher in Ontario (2.85% of GDP) than in all other provinces. Six provinces (AB, BC, PEI, SK, MB, NL) had ICT investment below 2%.
- The four largest provinces saw ICT investment decline in the 2000s (following the dot-com crash), some improvement leading up to the 2008 recession, and then continued decline or stagnation from 2009 to 2018—with the exception of Ontario, which recorded steady improvement from 2013 to 2018.
For country comparisons, we use the OECD ICT measurement, which includes investment in software (including pre-packaged software, customized software, and software developed in house), IT equipment (computers and related hardware), and communications equipment. For the provincial comparisons, we developed a comparable, but not identical, measure using Statistics Canada data that include software, and computers and electronics. For both, we control for economy size by dividing the amount of ICT investment by GDP to create a measure of ICT investment as a percentage of GDP.
ICT investment is a fundamental innovation activity for a number of reasons. Innovative organizations require information and communications technologies to share ideas among employers and with suppliers, clients, collaborators, and others. Technologies that facilitate these information-sharing activities can serve as enablers of innovation—contributing to the development of new or improved products, services, and processes; improving supply chains; and expanding markets. Additionally, they can serve as productivity-enhancing process innovation: The adoption and use of ICTs within organizations can contribute to business efficiency and productivity.
Previous work by the Brookfield Institute has shown that while the adoption of new technologies can be initially disruptive to firms and workers, over the long term those firms that successfully adopt and use new technologies improve competitiveness and position themselves to grow and create more jobs. Other research shows that firms that lead in ICT adoption experience significant improvement in customer experience, operational efficiency, and the development of new products and business models, all of which contribute improved revenue, profitability, and valuation. Research by the OECD finds that a 10% increase in the number of employees using computers improves productivity by 1.3%, while companies that made multiple ICT investments had 12% higher productivity than firms that did not.
When firm-level investments are aggregated and observed at the level of national economies, we see how ICT affects productivity and how differences in ICT investment can generate productivity gaps. Extensive work over many years by the Centre for the Study of Living Standards, for example, reveals the important role played by Canada’s lower ICT investment relative to the United States in explaining the productivity gap between the two countries. A recent examination of the evidence by researchers at the Bank of Canada notes that while the ICT–productivity link is more complex than is often thought, “it has been a major determinant of the subdued productivity growth since around the recession.” Although there are many determinants of innovation and productivity, ICT investment appears to play a substantial role for both firms and national economies.