The existence of a productivity gap between Canada and the United States should ultimately manifest itself in terms of the growth rate of real per capita GDP. If productivity growth in Canada is consistently below that of the United States, then our real per capita GDP should also not grow as quickly as the United States. Yet, the historical evidence shows that the real per capita GDP growth rate in Canada has not necessarily underperformed the United States since 1870. However, there is an interesting differential performance across time periods.
Figure 1 presents average annual real per capita GDP growth by decade starting from the 1870s for both countries and the comparison shows that while the United States has been doing better than Canada since the 1980s we did better from the 1950s to the 1970s. The United States appears to have done better than Canada during both the Great Depression and the 1940s while Canada saw higher growth during the roaring twenties. We also did better during the period of the Wheat Boom during the 1890s and 1900s. Indeed, the 1900s and the 1920s saw some very high average growth rates for Canada relative to the United States.
What is interesting is the variation in our growth rates. Over the period 1870 to 2012, the coefficient of variation (standard deviation divided by the mean) for real per capita GDP growth across the two countries is 2.65 for Canada and 2.37 for the United States. Our annual real per capita GDP growth rates are more dispersed. As might be expected in comparing a small open economy that is more reliant on natural resources, our economic growth is more subject to boom and bust than an economy that is more diversified and more reliant on a large internal market.
Notwithstanding the recent productivity gap of the last few decades, I would venture that the traditional perception of Canada as a lower productivity growth country relative to the United States is flawed. We simply have had a more variable growth rate as a result of our economic structure. We are a high flyer who is more often caught up in bouts of turbulence.