INDICATORS:
Income level: High Income
Population: 35.54 million (“Data” 2014)
GDP at market prices (Current US$): $1.785 trillion (“Data” 2014).
GDP per capita (current US$):
$50,230.8 (“Data” 2014).
GDP growth (annual %): 2.44 (“Data” 2014).
FDI Inflows: $59.6 billion in 2014 (“Trade Policy Review” 5).
FDI Outflows: $58.2 billion in 2014 (“Trade Policy Review” 5).
Balance of Payment:
Current account balance (BoP, current US $): (-) $ 37.47 billion (“Data” 2014).
Current account balance (% of GDP): (-)2.1% (“Data” 2014).
Import of goods and services (BoP, current US$) : $580.7 billion (“Data” 2014).
Exports of goods and services (BoP, current US$) : $564.6 billion (“Data” 2014).
Imports of goods and services (% of GDP): 32.52 % (“Data” 2014).
Exports of goods and services (% of GDP): 31.61% (“Data” 2014).
Gross capital formation (% of GDP): 24.02% (“Data” 2014).
General government gross debt (% of GDP): 88.1% in 2014 (“World Economic Outlook Database”).
Central government debt (Liability – gross debt): C$1,066 billion (“Economic and financial data”).
General government net debt (% of GDP): 38.6% in 2014 (“World Economic Outlook Database”).
Exchange Rate, official (LCU per US$, period average): 1.28 (“Data” 2015).
Trade (% of GDP): 64% (“Data” 2014).
Poverty headcount ratio at $1.25 a day, or 1.90 a day (2011 PPP) (% of population): Not available
Additional indicator of my choice:
Doing business: world ranking 14 out of 189 nations (“Doing Business” 2015),
The index shows the ease of setting up and doing business in an economics. Higher rankings show simpler and easier regulations for the operation of business firms. A country’s ranking is based on 10 sub-indices. Canada ranks third for sub-index “Starting a business”. In Canada, one has to complete two procedures to start a business that takes around 1.5 days to complete and costs 0.4% of per capita income. The indicator highlights the importance of regulations on economic growth.
Definition:
Gross Domestic Product is determined by adding gross value added by all finished goods and services produced within a country’s border in a specific time period. GDP is in generally calculated on an annual basis. Product taxes are included and subsidies are excluded from the value of the products. Depreciation of assets is also not included. GDP per capita is calculated by dividing the gross domestic product by midyear population.
A company or entity makes an investment into a company or entity based in another country under Foreign Direct Investment (FDI).
Current account balance is derived by adding net exports of goods and services, net primary income, and net secondary income.
Exports of goods and services show the value of all goods and other market services provided by Canada to the rest of the world. Likewise, Canada imports goods and services from the rest of the world. Goods and services include the value of merchandise, freight, insurance, transport, travel, royalties, license fees, and other services, such as communication, construction, financial, information, business, personal, and government services. They exclude compensation of employees and investment and transfer payments (“data”).
Gross capital formation refers to outlays on an addition to the fixed assets and net changes in the level of inventories. Land improvements, plant, machinery and equipment purchases, and construction of roads, railways, and buildings are included as fixed asset. The capital formation can be referred to as the net addition to capital stock. The increase in capital stock means the economy of the country has more capacity to produce as a nation uses capital stock along with its labor to provide services and produce goods. Producing more goods and services result in an increase in national income.
Trade is total of exports and imports of goods and services. It is expressed as a share of the gross domestic product.
General government gross debt (% of GDP) is expressed as Canada’s total gross government debt as a percentage of its GDP. General government includes central, state, and local governments. Net debt is calculated as summation of gross debt minus financial assets corresponding to debt instruments.
Official exchange rate denotes the exchange rate fixed by national authority or legally sanctioned exchange market. It is expressed as local currency unit relative to US dollar and calculated as an annual average based on monthly averages.
BACKGROUND OF THE COUNTRY AND RECENT TRADE AGREEMENTS
Canada is one of the most technologically and industrially advanced nation in the world. It is a country of vast distances and abundance of natural resources. Sparsely populated, covering an area of 9,984,670 km2, it is second largest country by total area in the World after Russian Federation. It is situated in the north of North American continent extending from the Atlantic to the Pacific Ocean and northward into the Arctic Ocean. Its northern and central regions have arctic and subarctic climates. Due to severe climatic conditions, few people lives in the region. Southern Canada experiences temperate climate and four-fifth of its population lives near its southern border. It shares the longest land border with the United States in the north. Canada has a federal structure for governance with parliamentary-type democracy and constitutional monarchy acting as head of the state. It is made up of ten provinces and three territories.
Canada has made impressive growth in manufacturing, mining, and service sectors. Its rural economy has been transformed into one primarily industrial and urban. Now, its economy is dominated by service sector employing about three-quarters of the population. Unlike other developed economy, Canada’s primary sector is important to its economy with oil and logging being most prominent. Discovery and development of Alberta’s oil sands has boosted oil reserve and oil production. Canada has well-developed automobile and aircraft industry (Statistics Canada).
Canada had made impressive economic growth from 1993 through 2007 based on its abundant natural resources, highly skilled labor force, and advanced technology. Its economic growth was stalled due to the effect of the Great Recession in 2008. After twelve consecutive years of surplus, it posted its first fiscal deficit in 2009 (“The World Factbook”). However, the Canadian banks played a major part in the recovery of the economy. Canada’s economy recorded growth in the year 2010.
Canada is a member of the Organization for Economic Co-operation and Development (OECD) and Group of Seven (G-7). International trade accounts for large part of the Canadian economy. Particularly, natural resources such as agriculture, energy, forestry, and mining accounted for 40% of total export in 2015 (“Exports of goods on a balance-of-payments basis, by product”).
TRADE AGREEMENTS
The economy of Canada has highly depended on international trade. Trade constitutes more than sixty percent of Canada’s annual gross domestic product and one every five Canadian jobs is directly linked to exports (“Global Markets Action Plan”). To increase market accessibility, the government of Canada has entered into Free Trade Agreements (FTA) with countries or group of countries. The government has explored and entered into new trade agreements with emerging economies. Recent FTAs cover trade practices in labor mobility, intellectual property, and investment.
Canada entered into North American Free Trade Agreement (NAFTA) with Mexico and the United States in 1994. The agreement helped to generate economic growth and raise the standard of living for the people of all three countries. In 1993, trilateral trade within NAFTA countries was US$288 billion. In 2014, trilateral trade increased 3.9 times to US$1.12 trillion. The combined GDP of three countries increased from US$8.0 trillion in 1993 to US$20.0 trillion in 2014 (“Canada's Free Trade Agreements”). Under NAFTA, tariffs on covered goods traded between Canada, Mexico, and the United States were eliminated. A dispute settlement mechanism was established under NAFTA. Besides increasing trade, NAFTA has made Canadian business more competitive around the world by providing opportunities with better access to materials, technologies, investment capital and talent available across North America.
Canada has entered into a FTA with the European Free Trade Association (EFTA) countries of Iceland, Liechtenstein, Norway and Switzerland on July 2, 2009. It is a goods-only agreement with an emphasis on tariff elimination. This benefitted Canadian producers and exporters by the elimination of duties on all non-agricultural merchandise exports and by easy access to Canadian companies of advanced technologies and inputs from EFTA markets (“Canada's Free Trade Agreements”).
Canada has free trade agreements with South Korea, Honduras, Panama, Peru, Chile, Colombia, Costa Rica, Jordan, and Israel. Canada is carrying out FTA negotiations with Caribbean Community, India, Japan, Morocco, and Singapore. Canada has concluded Comprehensive Economic and Trade Agreement (CETA) with the European Union and Trans-Pacific Partnership (TPP) agreement with trans-pacific countries, which include Australia, New Zealand, U.S.A., Japan and other countries.
DISCUSSION ON ECONOMIC DATA
GDP shows the economic health of a country and GDP per capita shows the standard of living. After adjusting for inflation, GDP indicates annual economic growth of the country.
Canada with advanced technology and highly-skilled manpower, takes FDI route for economic development and prosperity to its citizen. Multinationals based in Canada set up business on foreign countries utilizing its technologies and manpower and earning profit. Likewise, foreign multinationals set up business enterprises alone or jointly with the Canadian firms thus increasing revenue earning of the country.
The balance of Payment is one of the critical factors in formulating the country’s national economic policy. The economic policies try to address key issues related to payment imbalances and FDI. General government debt-to-GDP ratio indicates economic health of the country for sustainability of government finance. General government can be federal, state and local governments as they have the power to raise revenue through taxes. Government deficits are reflected by change in government debts (“OECD”).
CURRENT STATUS OF CANADA UNDER THE INTERNATIONAL ECONOMIC POLICY FRAMEWORK
Canada has an export-oriented economy. Canada works for freer trade through the World Trade Organization (WTO) in the Doha Development Round. It believes that all nations stand to gain by eliminating barriers to trade and from commercial liberalization. A successful outcome at WTO will expand the markets for agricultural producers, manufacturers and service providers that will be beneficial for all (“Trade Policy Review: Canada”).
CURRENT TRADE POLICY
The government of Canada prepared a comprehensive and strategic plan ‘Global Commerce Strategy’ in 2007 to expand Canada’s trade network by strengthening presence in existing markets and extending reach to new emerging market. It assisted the Canadian economy to face the global economic downturn successfully. Since then the global economy has changed. Barriers to international trade have been dismantled. Major advances in communication and transportation sectors have globalized commercial activities. Based on critical global inputs, a new Global Market Action Plan has been adopted in 2013. The main objective of the plan is to support Canadian companies and investors in key foreign markets so those Canadian citizens have access to new jobs and opportunities. Canada’s Economic Action Plan includes a strong focus on helping Canadian businesses and investors succeed in the international markets. The Canadian government has pursued trade agenda includes negotiations with a diverse array of countries and organizations in Europe, Asia, the Americas and the Middle East.
MONETARY POLICY
Macroeconomics focuses on the behavior of economic aggregates of a country such as total output, inflation, unemployment and economic growth. Broadly, macroeconomic policy is divided into two broad types: fiscal policy and monetary policy.
Under the monetary policy, a government usually through its central bank takes decisions to control money circulation in the economy. The Bank of Canada, an independent decision-making government body, conducts the monetary policy of Canada by adjusting short-term interest rates with the objective of keeping the rate of the monetary expansion under control so that rate of inflation is kept low and relative stable. Low inflation rate encourages long-term investment in the country’s economy, helps in job creation and increases productivity. The bank of Canada keeps the rate of inflation at around the 2 percent by adjusting the overnight rate. Changes in the Bank’s policy interest rate affect commercial interest rates, the exchange rate of the Canadian dollar, asset prices and people’s expectation of future economic activities. These influence the overall level of demand for goods and services and ultimately the rate of inflation (“The Economy and Economic Policy”).
FISCAL POLICY
Fiscal policy involves the decisions a government makes regarding revenue collection and expenditure. The government raises revenue through taxation and spends on goods and services to influence the economy. Canadian government has changed its fiscal policy. After returned to balance budget in 2014-15, the government has changed course and decided for fiscal deficit to reinvigorate its economy. It has planned to spend in large infrastructure investments as a policy of fiscal stimulus. A deficit of $29.4 billion has been projected for the year 2016-17 against a projected deficit of $5.4B for the year 2015-16 (Mogil).
FUTURE OF THE COUNTRY
People and firms specialize and innovate and they trade their specialization. This stimulates our living standard. However, after exploitation of all advantages, trade reaches a balance point and further developments are restricted. This situation is transient. People soon react to new opportunities and development processes starts anew. This causes cyclic fluctuation in the economy. During last twenty years before the present financial crisis, global trade has expanded by more than seven percent annually. The global economy has fully exploited the advantages and now expected growth has slowed down (Poloz 1).
Canada recovered from the recession. However, the sharp drop in the oil prices and other commodities affected Canada’s trade unfavorably. There has been significant drop in investment in energy sector and its ripple effect has spread through the entire economy. However, Canada with help it’s on advanced skills, high-value products and innovation will overcome the economic difficulties and advance towards prosperous future.
Work Cited
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“Data”. The World Bank. World Bank Group, 2014. Web. 30 April 2016. http://data.worldbank.org/country/canada.
“Doing Business”. World Bank Group, http://www.doingbusiness.org/, June 2015. Web. 30 April 2016.
“The Economy and Economic Policy”. Bank of Canada, Ottawa, Ontario, Canada, http://www.bankofcanada.ca/, n.d. Web. 30 April 2016.
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“Global Markets Action Plan”. Global Affairs Canada, Government of Canada, 05 Nov. 2015. Web. 1 May 2016.
“Map of Canada”. CanadaFAQ.ca, 2015. Web. 30 April 2016 http://www.canadafaq.ca/Images/ Map_Canada.gif.
Mogil, N. “Canada’s Fiscal Policy Shift”. Sober Look, www.soberlook.com, 24 March2016. Web. 30 April 2016.
“OECD”. General government debt (indicator), 2016. doi: 10.1787/a0528cc2-en. Web. 30 April 2016.
Poloz, S.S. “A New Balance Point: Global Trade, Productivity and Economic Growth”. Investment Industry Association of Canada and Securities Industry and Financial Markets Association, New York. 26 April 2016. Speech. Web. 1 May 2016.
“The World Factbook”. Central Intelligence Agency, Washington, D.C, https://www.cia.gov/, n.d. Web. 30 April 2016.
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“World Economic Outlook Database”. International Monetary Fund, Washington, D.C. , October 2014. Web. 30 April 2016.
