Economic growth in Canada
Economic growth can be defined as the increase in the actual market value of services and goods over a particular period of time in an economy taking into account the effect of inflation. It is measured by calculating the percentage rise in the gross domestic product (GDP). Gross Domestic product is defined as the measure of the total value of services and goods that are produced by a given country over a particular period of time. It gives the most reliable method to measure the economy of a country. Gross domestic product (GDP) take into account the total goods and services produced in a country by individuals, private sector and public sector. The rate of economic growth should be expressed after the effect of inflation has been adjusted, this is important in ensuring that information is not distorted by changes in prices brought about by inflation. Economic growth can either be intensive or extensive. Intensive economic growth is the increase value of goods due to efficient and effective utilization of input productions which include; land, labor and capital (O’Sullivan, 12-14). Extensive economic growth is brought about by the increase in input of production e.g. increasing of production territories or increase in population. Extensive economic growth does not have effect on per-capita growth. Economic growth is of great importance to a country. It reduces unemployment since production firms will have to employ more to increase production. It increases investments and leads to increase in the standard of living. Economic growth decreases the rate of government borrowing; this is because it increases the amount of tax collected enabling the government to be independent financially. Economic growth leads to improved quality of services to the public e.g. security, education and infrastructure. Various factors play a role in economic growth.
The various factors that lead to economic growth can result to economic decline if they are not properly handled. Political stability is very important in creating confidence in investors and other economic players. Instability can delay investment or even prevent expansion of firms due to uncertainty. Economic growth is accelerated by an increase in the rate of aggregate demand. Aggregate demand can be as a result of reduction in lending interest rates which results in more borrowing, increase in income from exports or increase in wages (O’Sullivan 14). This results in an increase in money that is dispensable hence increasing the purchasing power on the population. Economic growth is also accelerated by an increase in the productive capacity (aggregate supply) which is as a result of technological advancement and rise in the number of working population. Increase in labor output due to more training and educational advancement also contribute to increase aggregate demand. Another cause of economic growth is low inflation. When inflation is low the value of money is high and the purchasing power increases.
Canada is a mixed economy country in northern America. It has three territories and ten provinces. The country stretches between the Atlantic Ocean and the Pacific Ocean. It is sparsely populated with the huge percentage living in urban centers. Data from 2011 census indicate a population of 33,476,688 people, population estimates for 2006 is 362,864,725 people (OECD, Statistics Canada 23-40). It has an area of 9.98 square kilometers. In the year 2005 Canada was ranked eleventh country with the largest economy. In its endeavor to do trade it is a member of OECD (organization of economic cooperation and development) and it is also a member of the G8 among other trade agreements. Canada has witnessed a good political stability and transition from one regime to the other. This has created investors’ confidence and the goodwill to set up long term projects without fear of political uncertainty. The country is also ranked at position ten worlds’ most globalized economy. It is also considered as a developed country.
This paper analyses the process of Canada’s economic growth, the various causes and benefits of the growth. It investigates the indicators for growth and risks factors that may lead to decline in Canada’s economic growth. The future of Canada’s economy is also analyzed. Population analysis and projection are also studied. Taking into consideration the global economy and trade environment, the paper studies the role of Canada in global trade. It also brings into picture the nominal Gross Domestic product (GDP) and projections, public finances, debts, employment and unemployment.
Economic growth of Canada
Economic growth is the increase in the actual market value of services and goods over a particular period of time in an economy taking into account the effect of inflation. It is measured by calculating the percentage rise in the gross domestic product (GDP). Economic growth directly determines the standard of living of the citizens. Per capita income, which is the value of earnings per person is and important aspect of financial well-being of a country. The value of investment and expansion in production within a given territory helps in analysis of the economic growth. Canada like other developed nation has undergone massive development and economic growth phases that has had great impact on the change in participation of labor in the production. The transformation from being an agricultural based economy to industrial and manufacturing economy changed the country to an urbanized economy from a rural economy. Canada now has its greatest population percentages settled in the urban centers.
2012 economic estimates established Canada’s economic contribution by sector as follows; agriculture contributed least at 1.7% of the total GDP, manufacturing and industries is 28.5%, services contributed the highest at 69.8% (StatsCanada 12). The service industry is the major contributor to Canada’s economy and any changes in the industry adversely affects the economy. Agriculture is responsible for the production of food and raw material for food processing industries. Manufacturing and production industry in Canada greatly evolved during the era of industrial revolution. It is a recognized world player in the manufacture of finished food products, paper pulp and timber products, minerals (both processed and unfinished e.g. gold and magnesium), transportation plants and equipment, assorted chemicals, natural gas and petroleum. Due to its vast water bodies, it is a known producer of fish. Technological improvements and advancement in the utilization of raw material have been on the rise. It has led to the production of quality goods and a great increase in the volume of production. Technology on the other hand leads to increased reliance on machines for production therefore eliminating human labor and causes unemployment. These have transformed the economy raising the GDP estimates form $1.548 trillion in 2015 to $1.592 trillion in 2016 which is a growth of 0.5% in the GDP within the period (StatsCanada 12). This is an indication that Canada economic growth is gradually increasing. Comparing with other neighboring countries United States which is its main business partner and Mexico the trend is worrying. Canada which is approximately the same size by area but one tenth less by population to the United States registered just one tenth of the US. US registered a GDP of $ 17.9 trillion. Canada is three times the size of Mexico by area and a population of one third that of Mexico recorded GDP slightly less than that of Mexico which registered $2.2 trillion (Hatt). The GDP growth rate was less than that of both US and Mexico by approximately 1 percent. The GDP growth in US was at 2.6% while that of Mexico Was 2.3% during the same period. The standard of living in comparison with these two nations was $45,900 less than that of US and $18,500 more than that of Mexico. The standard of living was measured by the value of per capita GDP during the same period (StatsCanada 23). The standard of living is controlled by the population of the country compared to the net real GDP.
After the economic recession Canada like other states battled for recovery, some countries are yet to record any positive recovery. Canada has relatively tried to counter the economic recession and the challenges that come with the near collapse of the economy. After the global economic recession, Canada’s recovery is low compared to its sister states in the same economic block. The economic growth as a measure of per capita GDP is increasing but at a slower rather compared to other economies within its trading block. To attain economic growth, the growth in GDP should be much higher than rate of population growth. It helps in ensuring the purchasing power of consumers remains high since it increases the amount of dispensable cash in the economy. Canada’s’ population from the 2011 census estimated by province is represented in the table below;
|Rank||Population in 2006
|Population in 2011||Change in population||% growth|
|Newfoundland and Labrador||7005505469000000000♠505,469||514,536||7003906700000000000♠9,067||1.8|
|Prince Edward Island||7005135851000000000♠135,851||140,204||7003435300000000000♠4,353||3.2|
Table 1. Source (StatsCanada 45)
Population growth of 5.9% was experienced between the year 2006 and 2011. Canada is experiencing a population increase of approximately 1.3%. This population growth is a barrier to realization of rapid economic growth. In Comparison to its sister states in the OECD Canada’s population growth is higher. Rates of population growth higher that growth in real GDP implies that many people are straining the available resources.
Growth in real GDP will occur if net export of goods and services is positive. Net export can be defined as the difference in the value of exports and imports. Imports have a positive effect on the GDP while exports have a negative effect on the GDP. Exporting of raw material and unprocessed goods my not impacts significantly to the economy since they have lower values and high volumes (Son 12-13). On the other hand, importing of processed consumer goods and finished products will escalate the value of imports and impact negatively to the real GDP. The value of export should be higher than the value of imports thus creating a surplus. The measure is not about the volume of export but the market value of the export and imports. More import value compared to export reduces the rate of economic growth. Canada exports a high percentage of its products to the US an also imports high percentage of products from US. In the year 2015 Canada had a net import of $419.2 billion majorly to the US amounting to 75.2%, China 4.1%, United Kingdom 3.17%. Among the imported goods and services are; motor vehicle and spare parts, Aeronautic equipment, plastics, oil and pharmaceutical equipment. On the same year she had a net export totaling to 408.8 billion which is a drop from the previous years, 9.2 % since the year 2011. This export value indicates a drop of 13.7 % in 2014 (StatsCanada 23-24). This is not good news to the desired economic growth since there was a deficit of approximately five billion. Among Canada’s top exports are oil, wood pulp, motor vehicle and machinery. Canada exports most its products to US but there is trade imbalance between the two countries whereby Canada imports from US exceeds its export. This is not good for economic growth of Canada. This imbalance in trade affects the GDP growth negatively. Inflation is a challenge too that affects economic growth; high level of inflation reduces the value for money therefore reducing the dispensable cash. Inflation may lead to exaggerated prices of goods and services therefore impacting negatively to the economy.
Public debt is a factor that affects economic growth. Debt prevents investments and reduces the amount of money in circulation. Increased debt by the government is usually caused by budgetary deficit. When government revenue is not sufficient to fulfill the budget needs it forces the government to borrow both internally and externally. Though borrowed money increases dispensable cash within the economy, long term effects are diverse when it is used to settle non-revenue generating processes e.g. wages and medical care. Long term debts with long term interest reduces rate of real Gross domestic product growth. Canada like other nations has borrowed and both locally and internationally. OECD report indicates that the government debt expressed as in terms of percentage of real GDP was at 40.9% in the year 2000. It dropped to 25.2% in the year 2007. From the year 2008 Canada’s debt has been rising whereby in 2008 it was at 28.6% further rising to 36.1% in the year 2010 (Hatt 13-14). With this value Canada was rated as the country with the least government debt among the G8 nations. Government borrowing is usually caused by inadequate revenue collection to finance government project and expenses. But taking into consideration the small population of Canada this debt expressed as per capita is quite a huge burden to the citizens. CIA World Fact book adopts financial liabilities measured by taking into consideration general gross debt by government as a more precise method opposed to the method adopted by OECD and the government. This method takes into account both the intergovernmental debt public debt at subnational levels of the economy. CIA reports Canada’s public debt as a percentage of GDP as 84.1% in the year 2012 which is a decrease from that of 2011 which was reported as 87.4% of GDP. This ranks it at 22nd country worldwide (OECD 12-24). Debt incurred by households is another factor that governs economic growth. If household borrow money for investment it leads to economic growth, on the other hand the debts reduce the amount of money that is dispensable. When the amount of money borrowed is not reflective of and improvement on living standards which indicate that the money is spent in recurrent expenditure then economic growth will not be achieved. Reduction in borrowing interest is the main contributor to borrowing. Lending institutions may reduce the interest on loans so as to accelerate investment. Government may also put relieves to encourage borrowing and investment. The rate of unemployment also contributed to economic growth.
After the economic recession, Economic recovery was faced with a new challenge, the challenge of unemployment. Many countries e.g. Italy and Greece are yet to record any positive result in their employment rate. Canada has had a better employment rate as compared to other nation within its trading block. It is estimated that 4% of Canada’s population is employed directly in primary production fields e.g. agriculture and other basic production industries. The logging industry which produces timber (one of the leading export from Canada) is also responsible for existence of many towns around Canada. The primary resource industries contribute approximately 6.2% of the GDP. The quality of employment is also very important in accelerating growth The table below shows the statistics of unemployment in Canada;
Unemployment is a concern in the current world.
|Newfoundland and Labrador||11.9|
|Prince Edward Island||11.6|
Table 2: Source (OECD) (OECD, Statistics Canada) (Son)
. The time that a person waits before getting employed is also very important in ensuring that there is proper utilization of human labor. . Late entry into the job markets lead to short employment periods due to requirement to exit because of age .Rise in unemployment rate is a concern to the economy. It increases dependency ratio whereby one employed person becomes the bread winner for many people. This reduces capital available for investment since there is little saving form the earnings (Hatt 14). Underutilized labor is also a change to the economy. Labor as a factor of production also contributes recurrent expenditure in form of wages. Governments run a risk of running a huge wage bill which is a might be unsustainable. Proper utilization of labor to ensure that they contribute to the GDP is of great importance. Increase in unemployment rates indicates a decline in the economic growth. Dependency ratio reduces savings and subsequent investment this is because people have to fulfill numerous obligations before excess money is saved for investment.
The standard of living is of the people indicate the position of economic growth. It can be defined as the level of comfort and wealth, availability of material good and necessities both basic and secondary that is available to particular socioeconomic class of people in a given area. Improved standards of living is determined by the availability of quality employment positions, availability of income, reduced poverty rate affordable quality housing, affordable and ease access to health ‘improved public services and infrastructure among others. It generally measures the quality of living among the different socioeconomic group. Improve d living standards indicate a growth in the economy. Standard of living dictates the purchasing power of the people. Improved living standards helps in reducing government borrowing since tax remittances will improve. The number of people living below poverty line should be reduced if economic growth is to be achieved. Another challenge is the gap between the high income earners and low income earners. Widening of this gap creates a nation in which there is a continuous cycle of poverty within the greater majority of the population. A wide gap between the rich and the poor is never good for any economy. Increased standard of living increases independence in a country. It is usually measured by analyzing the actual earning per person in an economy. To attain better living standards, saving rates must be increased. With no saving there can be no investments. Savings is achieved when all earning exceeds expenditure therefore the surplus is saved. A saving culture should be advocated and investment information made available. Many factors come into play while dealing with savings, first the rate of growth in GDP must be significantly higher than the rate of population growth. Saving makes it possible for entrepreneurs to borrow money to invest in new business or even expand existing business. The culture of saving must be cultivated if achieving real growth in GDP in to be attained. Banks should encourage savings by attaching an attractive interest to saving made. Government should also encourage saving by regulating the banking institutions and ensure that they encourage even the slightest savings. As saving is encouraged it is also important to encourage borrowing by ensuring fair interest and payment periods. Huge interest on l0oans and short repayment periods discourages borrowing and therefore, limits investment. Population growth is also important in determining the standard of living of the people and the economic growth in general. Higher population growth compared to the growth in GDP leads to decreased standards of living. Government savings in foreign reserves is an indication of economic growth. Canada’s foreign reserves were established to be $65.82 billion as at 2011 December 31st. Canada registered a huge percentage of people living below poverty level. The percentage of people living below poverty level in March 2015 was established to be 12.9%. With the rate of increasing population and slow employment rate, this number may increase if corrective measures are not implemented. High percentage of people living below poverty level limits investments and creates numerous socioeconomic concerns including security deterioration which in term negatively affects the economy. Economic growth should be monitored from time to time analyzing the determinants of growth and how they respond to changes from time to time. Among the parameter’s to be analyzed include; determining the weekly claims due to jobless for unemployment insurance- this will give a clear indication on the trend of unemployment and projections can be made to determine expected unemployment rate. It is also important to determine the new order and supplies made by manufactures to consumers. This helps to determine actual change in rate of production. Determining the amount of money in supply helps to determine the actual purchasing power of the people, high amount of money if circulation implies that the purchasing power is also high.
In its endeavor to have a progressive economy, Canada has to overcome numerous huddles the face it in present and in the future. Canada has a large surface area with an estimated coverage of 9,984,670 square kilometers which is equivalent to 3, 854,085 square miles. Majority of the land is covered by tundra, thick forest and Rocky Mountains. The climate of the northern part which forms the greater area is cold and severely cold during winter. This has forced the population to settle along the southern coast whose climate is warmer and favorable. The climatic condition has thus rendered a big percentage of the land nonproductive agriculturally. The country is sparsely populated making it difficult to equally distribute national resources. A small number of people distributed over a large area present a challenge in providing essential need like clean water, quality medical services, infrastructure and security. This will negatively affect the standard of living of the people. Canada only borders one country which is the United States of America (USA). This is a challenge to the economy of Canada. Exporting of product to markets outside the US is an expensive affair. This has limited its aggressiveness to export bulky product due to the challenge that comes with it. This has made US the greatest trade partner of Canada limiting its explosion to other world markets. It has the longest border with the US. The prices of crude oil which is among the big income earner to Canada has been facing constant drop in prices in the world market. This threatens the Canadian economy. Earnings from export of crude oil and petroleum products has constantly declining therefore straining the economy. Climate change and global warming also offer a challenge to the future of Canada just like other nations of the world. Amid all these challenges Canada stand on the right path in economic growth and can achieve better real GDP earnings due to various factor that favors its’ growth.
Canada is well endorsed with minerals and valuable ores. This offers immense possibility of economic growth. The resources are available for use and exploiting the resource in a cautious manner presents great possibilities of growth. Canada has the second largest oil reserves. With the diminishing oil yields in the world Canada stand a chance of dictating the world oil economy; this comes with immense opportunity of growth. It also huge reserves of natural gas which some are yet to be exploited. Canada has also enjoyed a good political environment and the transition from one political regime to the other has not offered a challenge. With the continued political goodwill investors’ confidence to initiate new opportunities or expand existing one is boosted.
In conclusion, Canada’s’ economy has been on the rise even though it is at a slow pace. After the economic recession, the recovery of Canada has been commendable in comparison with other state like Italy and Greece been fairly below that of the US-Canada’s greatest trade partner., employment challenge after then recession has been fairly addressed. The percentage of people living below poverty line is worrying and should be addressed. Trade imbalance arising from more value of export than import should be eliminated. The future of Canada’s economic growth is very promising.
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StatsCanada. Canada’s economy grows by 0.5% in June, 2015.
 Intensive economic growth generally entails an increase in the efficiency in using the factors of production that may be brought about by improvement in production technology.
 Aggregate demand is the measure of the market value of products in terms of money paid for the products but it does not reflect on the living standard.
 Aggregate supply is the measure of goods and services that manufactures are planning to supply to an economy
 Foreign reserve is the amount of money that monetary institutions e.g. IMF or Central banks holds and can pay it out in case of liability. It includes assets. Higher foreign reserve translates to higher credit worthiness of the country.
 Poverty level also referred to as poverty line is the minimum income acceptable in a given country
 It is expensive to provide public utilities to sparsely populated area due to the capita and maintenance cost involved