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organizational change. Government policies in this country currently do not represent a
major impediment to or constraint on business investment, innovation and human capital
formation, and hence on productivity growth. It is extremely unlikely that Canada’s
potential labour productivity growth is double its current trend productivity growth
(estimated to be around 1.5 per cent per year by the Bank of Canada (2006)). In other
words, in a world where Canadian governments institute the policies most conducive to
productivity growth, it is very unlikely that long-run productivity growth could double.
This does not mean that there is no potential for productivity improvement
through better public policies. Indeed, this is the premise of the paper. But one must be
realistic about the potential for improvement. In my view, a reasonable ballpark upper
bound estimate of the impact of better public policy on labour productivity growth in the
medium term might be 0.5 percentage points increase per year. Of course, trend labour
productivity growth could potentially pick up by much more than 0.5 points due to non-
public policy related factors such as more rapid technological progress and faster capital
accumulation. Indeed, few if any economists argue that the large acceleration of labour
productivity growth in the United States since 1995 has been primarily driven by
improved public policy.
Chart 3: Provincial GDP per Worker as a Proportion of the National
This impact of better public policy on productivity may seem small, but given the
size of the economy, in absolute terms it is huge. In 2006, the nominal value of GDP in
Canada was around $1.4 trillion or $1,400 billion. An increase in productivity and hence
nominal GDP of 0.5 per cent would amount to $7 billion per year. This is massive. Public