« A demographic explanation for the decline in labour's share of income | Main | Real wages and productivity revisited »


Feed You can follow this conversation by subscribing to the comment feed for this post.

Oh Jim, he's at it again.

I always enjoy Jim Stanford's columns, but I appreciate you challenging them too. Not being up with the data, I'm sometimes at sea who to believe. I usually believe whichever of you I read last.

I do have an idea why imports and the CAD don't appear more in his column: the 600-word limit (or maybe it's 800?) Not much space there either way.

Re Travis' comment - how can you make "less cyclical" distinctions between commodity sectors (including energy) and non-commodities sectors in this context? If the boom in commodities in Canada is causing the dollar to appreciate dramatically and is making other non-commodity sector relatively more expensive for the buyers of Canadian exports (thereby reducing export demand in those sectors), how can you describe the downward trend for non-commodity sectors as "less cyclical"?

I feel compelled to come to Jim's defence on a couple of points.

First, regarding the exclusion of energy exports, the quote above is taken out of context. The previous paragraph begins: "This [drop in exports] occurred despite a historic expansion in Canada’s energy exports (especially oil, and especially to the U.S.), which almost doubled in the same time. Non-energy exports, therefore, fell even faster..."

Second, Jim also discussed the appreciation of the CAD: "Most of the decline in trade has occurred since 2002 when our loonie first took off – fuelled by rising commodity prices..."

Dear Stephen and commenters...Just back from touring around the Aussie outback, to find these comments on my recent G&M column.

Thanks as always for the spirited discussion. Thanks to Travis and DBailie for adding some perspective. A quick response to some of the complaints put forth:

1. Mixing up prices and quantities? The original column did indeed refer to the fact that about half the decline in the (nominal) ratio of exports to GDP was due to the falling value (in Canadian dollar terms) of our exports. The other half reflects a reallocation of real economic activity away from exports. I would argue, however, that even the purely price-driven portion of this decline is important. It means that Canada's exports are generating less income at home than they used to. This translates into reduced incomes (for companies and workers in those sectors), reduced domestic spending, reduced export-driven taxes for government, and other important economic effects.

Stephen and I have had a similar discussion (on the issue of real vs. nominal business investment spending) about whether GDP shares should be calculated as ratios of nominal measures or ratios of (separately deflated) real measures. For similar reasons, I think the ratio of nominal exports to nominal GDP is the most meaningful -- although it is important to decompose that into price changes and quantity changes.

2. Canadian dollar appreciation? I indeed listed this (and the Bank of Canada's accomodating attitude) as the most important reason for the phenomenon I described. Most people know that a higher dollar means cheaper imports. But few understand that it also means less "valuable" exports: that is, our export revenues for products priced globally, translated back into loonies, shrink (even if there had been no decline in real export volumes -- which in fact there has been). A real economic consequence of the loonie's appreciation has been the transfer of economic activity into non-exported (ie. non-traded) sectors, which accounts for half of the measured decline in the X/GDP ratio. (I suspect, furthermore, that this will grow as real trade flows continue to gradually adjust to the big terms of trade change. This adjustment will be dominated by the continuing hemhorrage (sp?) of Canadian manufacturing.) This shift to non-tradeables has occured despite the real and nominal expansion of one particular traded sector: energy.

3. Speaking of which, why am I interested in the extent to which this phenomenon is visible in energy vs. other exportables? For two reasons. First, I have a personal (and oft-stated) concern with Canada's reversion into natural resource exporter, which is a key factor behind the decline in exports. Second, the trends have been quite separate for energy and non-energy exports, in which case it makes good sense to consider the extent to which the growth of energy exports has offsets the decline in other exports. The fact that non-energy exports are smaller as a share of GDP than when we entered the NAFTA speaks volumes, in my view, about the extent to which NAFTA was indeed about reinforcing Canada's "hewer of wood, drawer of water" status in the continental economy -- rather than about cementing market access for Canada's value-added goods.

Is this whole trend really about "diminishing importance of the global economy", in a general sense? Not really, of course. All of these factors (including the global commodity price boom which is responsible for much of the appreciation) are wrapped up with global forces. But the fact that (in real terms, and even more in value terms) we are allocating significantly less of our output to world markets is surprising and consequential.

PS: My Globe columns have a 725-word limit.

The comments to this entry are closed.

Search this site

  • Google

Blog powered by Typepad