Applied Econometrics and International Development Vol. 8-1 (2008) KNOWLEDGE-BASED LABOR PRODUCTIVITY IMPROVEMENTS: CANADA CASE STUDY, 1961-2004

This paper examines the importance of Research and Development activities as a source of growth in labor productivity in the Canadian economy within last four decades. Time series data are used to develop an econometrics model that captures the interaction between labor productivity and R&D, stock of public infrastructure and trade openness. Extensive tests of quality of data, choice of model and structural breaks are performed to enrich the value of the research. Our results suggest that the type of capital involved has a significant effect on the extent of labor productivity and growth improvement. Innovation as the major characterizer of the knowledge based economy improves the labor productivity both in short and long run. The trade openness effect has been discussed in depth consequently