Economic Growth of Canada

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Economic growth of Canada
World Count: 1937

Canada is one of the biggest economies in the world. It became independent country in 1867. Canada is the second largest country in the world and has affluent nature resource, such as oil, gas and uranium. What is more, the location of Canada also helps its economic growth from different aspects. It is next to the biggest economy in the world which is the biggest trade partner. Canada is a democratic country. The legal system is based on English law. It has a mature service industry. Around three quarter of labor force is working in service sector. The affluent nature resource and highly skilled labor force and highly capital stock allow Canada have a stable economic growth since 1993 to 2007. Same as other developed countries, Canada dropped to a serious recession since 2008. In the second part, Canadian economic growth from 1950 to 2007 would be analyzed by using growth accounting model. The model divided economic growth into three sectors, capital, labor force and total factor productivity [TFP]. The essay will mainly focus on GDP per worker as a standard of economic growth, use investment as capital factor and the employment as a share of population as labor factor. According to the model, expect labor and capital factor, there still have something is missing to explain the economic growth which is TFP. Since there is few data can direct explain the TFP, evidence from policies and other literacy evidence would be given in this part. In the third part, the reason of Canadian economic growth would be explained by using the factors appeared in Growth Report 2008. Government policy would be taken account for economic growth and the challenge that Canada is facing will also included. Finally, a brief recommendation and conclusion would be given in the last part.

Canadian growth from 1950 to 2007
Total output growth
In order to measure the total economic growth, GDP per worker is used to measure the total output growth, since it can reflect the productivity effectively. The GDP per capita increased 2.4 times from 1950 to 2007 and the average growth rate is 1.54% each year. As can be seen in graph 1, the GDP per capita growth is fluctuation during 1950 to 2007. However, the extent of fluctuation is shrinking. The largest growth fluctuation in 1950s was appeared in 1954 and 1955 affected by the Korean War. At that time the GDP per capita growth shot from the bottom which is -4.5% to almost 7.7% in 1956. After the unstable period, Canada experienced a stable economic growth period, since the stronger relationship has built between Canada and America. By contrast, the biggest gap happened after 1990s is bottomed at -3.1% in 1991 and peaked at 4.4% in 1994. The big recession was because the America Great Depression. After that, Canada entered a stable growth period until 2007.

Graph1 (resource from: Penn World Tables)
Capital factor
The aggregate investment share of GDP increased 70% from 1950. The graph 2 shows the investment share growth. As can be seen, the fluctuation trend is quite similar with the GDP per capita growth. The first fluctuation also begun in 1954 and back in the next year. Also affected by the American Great Depression, the investment share of GDP dropped to – 3.1% in 1991 and recovered in 1994. It implies that the investment share of GDP is a key factor to drive the output growth. The average growth of investment share is 0.57%.

Graph 2 (Resource from: Penn World Tables)
Labour factor
The employment as a share of population is used to show the change of labour factor in Canada. There was a baby boom in 1950s. The growth rate of population exceeded 2% every year in this period and it did not happen in Canada again. It became efficient labour in the next decades. As graph 3 shows, the high employment as share of population had a rapid growth rate in the next two decades. It is also because women work participation rate increased...
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