ECON 208D Economics - GDP of Canada

Answer

Economics 

1. The real GDP of Canada like most of the other economies of the world includes few of the components such as the household spending, government spending, Investment and the next export. According to the article related to the economic growth of Canada, all the components have increased over the time. However, the growth and effect of each of the components have been different. Donayre & Wilmot (2015) highlighted that a boost to the economic growth was mainly provided by the increase in the investment and household spending. While the household spending has increased by 0.5% since the last year, the investments have increased by over 2.3%. In addition to that, the report on Canada's economic growth states that household spending is the largest component of the real GDP. Thus, a steady increase in the household spending has given a regular boost to the real GDP of the economy. However, the sudden boost to the real GDP has been mainly provided by the assistance from the government. The reports from the IMF have stated that the decrease in the oil price coupled up with the increase in the government spending is the main reason for the impressive economic performance of Canada till July 2017. Furthermore, the overall export volume of the country has also increased for the second year leading to an increase in the net export component of the real GDP of the country (The Canadian Press. 2018).

2. Most of the Canadian provinces have good quality technologies and manufacturing units. The products of these units make a good business in the USA using the rules and the regulations of NAFTA. Lange (2018) stated that the export of the country has increased from 25% of GDP in the year 2015 to 31% of the GDP of the country. Furthermore, the export component of the GDP also helps in the job creation as well. According to the figures for 2016, the total number of direct jobs related to the export sector is 4526400. In addition to that, the international trade allows the country to source its raw materials from the other parts of the world (CBC News. 2018). Around 31% of all imports are used in the technologically enriched production system of the country that further generates a high volume of export leading to a trade surplus for the economy. Cross (2016) noted that the main contribution of the international trade in the economy of Canada is in form of higher productivity.

                                   Figure 1: The increase in the export of Canada over the years

                                                                              (Source: Lange, 2018)

The steady performance of the Canadian economy is attributed to the strong trade relationship with the USA. Most of the trade of the county is related to the USA. Raw materials coming to Canada as forms of input not only help in the cost reduction but it also augment the productivity of the manufacturing units. According to Kader (2016), firms of Canada that exports the final goods in partner countries have better productivity than the firms that do not. Thus, international trade plays a crucial role in maintaining a healthy and steady growth of the Canadian economy.

                                      Figure 2: The Trade as a percentage of the GDP of Canada

                                                                                    (Source: Lange, 2018)

3. According to the reports, the provincial economies of Canada are more vulnerable to the termination of the NAFTA agreement than the national economy of the country (Gagnon & Keil, 2016). Therefore it can be said that in general, the economy of Canada will suffer due to the interrelationship between the central and the provincial government of the country.                                 

The article reports that the provinces that have high export as a part of the provincial GDP is more likely to get hurt if the agreement is terminated. Therefore, New Brunswick and Ontario may be the most affected among the provinces of the country. The export of New Brunswick and Ontario is 28.5% and 26% of their respective GDP and hence the termination may hurt these provinces the most. On the other hand, provinces such as British Columbia and Nova Scotia have an export of 9% and 8.8% of their respective GDP (Global News. 2018). In case of termination of NAFTA, these provinces will find markets for their output easily (Van Harten, 2016).  Thus, Columbia and Nova Scotia have the least chance to get affected due to the termination of the agreement. Apart from that, there are few of the provinces of Canada such as Alberta and Newfoundland and Labrador that are completely out of the influence of NAFTA and hence can neutralise the negative effects on the national economy of Canada to a certain extent if the agreement is terminated.

Reference

CBC News. (2018). Canada tops G7 in latest IMF estimate for 2017 economic growth, No. 2 in 2018. Retrieved from https://www.cbc.ca/news/business/imf-canada-economy-g7-1.4347737

Cross, P. (2016). The Importance of International Trade to the Canadian Economy: An Overview. Fraser Institute.

Donayre, L., & Wilmot, N. (2015). The asymmetric effects of oil price shocks on the Canadian economy.

Gagnon, A. G., & Keil, S. (2016). Ideology, Political Economy, and Federalism: The Welfare State and the Evolution of the Australian and Canadian Federations. In Understanding Federalism and Federation (pp. 143-160). Routledge.

Global News. (2018). These provinces will be most (and least) hurt if NAFTA is terminated: report. Retrieved from https://globalnews.ca/news/4087122/nafta-termination-canada-provinces-effect-moodys/

Kader, M. U. (2016). Evolution of Canadian Business Cycle with Terms of Trade.

Lange, R. H. (2018). The effects of the US business cycle on the Canadian economy: A regime-switching VAR approach. The Journal of Economic Asymmetries, 17, 1-12.

The Canadian Press. (2018). Canadian economy grows at 3 per cent in 2017, fastest pace in 6 years. Retrieved from https://globalnews.ca/news/4058301/canada-q4-2017-gdp-growth/

Van Harten, G. (2016). If Donald Trump Kills NAFTA, Canada Could Benefit Walkom.