On investment and exchange-rate movements

We investigate the ways in which permanent exchange-rate changes may affect investment by influencing domestic and foreign revenue, the cost of imported variable inputs and the investment price of imported capital goods. We find that the revenue and investment-price channels have a quantitatively greater effect on investment than the cost channel. The negative effect of the revenue channel, which affects the marginal profitability of capital, outweighs the positive effect of the investment-price channel, which affects the marginal cost of capital, implying that exchange-rate appreciation has a net negative influence on investment. The estimation results are robust to different approaches to extracting the permanent components of exchange rates.     

Canada–US productivity gap: The role of competition intensity differential

The relative lack of competitive pressure in product markets and lower investment in both fundamental and applied innovation are among the potential factors that have been put forward to explain Canada’s weak productivity performance with respect to the US. Since competition is generally seen as the single leading catalyst for fundamental and applied innovation, this paper analyzes the role of product market competition in the Canada–US productivity level gap. We develop an empirical framework in which competition exerts both direct and indirect effects on productivity, with the indirect impact coming through fundamental and applied innovation. We find statistically significant evidence that the competition intensity differential (between Canada and the US) has contributed to the Canada–US productivity level gap directly, as well as indirectly through lower investment in both R&D activities and M&E (including ICT) investment. We also find statistically significant evidence that Canada’s relatively poor performance in both productivity and M&E (including ICT) investment have acted as a self-reinforcing mechanism, which further causes detriment to the country’s productivity.     

Foreign-affiliate presence and skilled labour demand

This paper investigates the effect of inward foreign investment on the relative employment of skilled labour. The extensive review of the empirical evidence shows that the results seem to be country-specific. Using Canadian industry-level panel data, the paper shows that most Canadian industries have experienced skill upgrading, and that foreign investment, as measured by FDI or majority ownership, has contributed to this development. Moreover, notwithstanding higher regulatory restrictions on foreign investment into Canadian services industries, foreign investment has had a similar impact on skill upgrading across both the services and non-services sectors. Finally, offshoring is found to only have a positive significant impact on skill upgrading in the services sector.