The decomposition of total factor productivity growth for the Canadian service sector

This paper decomposes the total factor productivity growth for the Canadian service sector with a dynamic factor demand model. Nonlinear full information maximum likelihood estimator is applied to Canada's KLEMS data set to analyze the determinants of the production structure, factor demand, and technical change. KLEMS stands for Capital, Labour, Energy, Materials and Services. The results show that only a few Canadian service industries experienced positive total factor productivity growth and had a major gain from technological change during the period 1983-2003. A fraction of industries had decreasing returns to scale which negatively affected the growth of total factor productivity, and some industries experienced capital underutilization.