Canada’s Economy, Essay Example

Today Canada one of the world’s largest economies. Most of the businesses are privately-owned, but government does play a major role in the health-care systems and operates many services like transportation and utility company. The diversification of the Canadian economy can be illustration by the fact the Canadian economy varies from region to region.  For example, the Eastern provinces’ main components of the economy include: marine and fishing industries, telecommunications, and energy production. The city of Montreal, part of Quebec province, has become one of the nation’s centers for high-technology firms including a large number of computer software companies. Other industries found in the Quebec providence include: pharmaceuticals, aerospace, and telecommunications.  Another example of diversification is in the province of Ontario where Ontario is the nation’s main industrial center.

It can be concluded that the diversification has contributed to Canada’s ranking of the seventh-largest economy in the world. In addition, there are other factors that contribute to this ranking. These factors include: business freedom, trade freedom, fiscal freedom, government spending, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption, and labor freedom. The purpose of this paper is to examine the ten factors related to Canada’s ranking as well as discussing Canada’s past and future economies. Canada’s businesses are strongly protected under Canada’s regulatory environment. It is furthermore quick to establish a business in Canada because it takes an average of five days, compared to the world’s average of 35 days. Obtaining a business license requires less than the world’s average of 18 procedures and 218 days. The second economic freedom factor is trade freedom. In this area, Canada’s weighted average tariff rate in 2009 was one percent. The cost of trade is increased by federal and provincial non-tariff barriers which placed restrictions on imports of “domestic ‘supply managed’ agricultural products, restricted access to certain service industries, import taxes, export-import programs for industry and agriculture producers, cumbersome standards and import licensing, and state trading boards for some agriculture products” (qtd. “Canada Economic Report”, 2010). The score of 88.1 reflects a deduction of ten points to account for non-tariff barriers.

The third and fourth economical factors are fiscal freedom and government spending. As for fiscal freedom, Canada’s score is based on the fact Canada has moderate tax rates. Canada’s overall tax revenue as a percentage of gross domestic product (GDP) was 33.3 percent. Canada in the next factor, governmental spending, saw high governmental expenditures, including consumption and transfer payments. This high expenditure rate is illustrated by the fact government spending equaled 39.1 percent of GDP.  With the lowest debt-to-GDP ratio in the G-7, Canada has well positioned itself to finance a significant stimulus plan due to the recent downturn in the global economy.

As for monetary freedom, the fifth economic factor, Canada has seen low inflation especially between 2006 and 2008 averaging 2.3 percent. Like the United States, Canada’s prices are determined by the market (Potts & Yerger, 2010). The Canadian government does regulate utility prices, nor does the government have part in subsidizing any industry or agriculture producers. The government neither does have any laws on controls prices for some agricultural products . The government controls virtually all prices for health care though its mandatory “single payer” nationalized program (qtd. “Canada Economic Report”, 2010). Canada lost fifteen points in monetary freedom because of measures that distort domestic prices. The next factor is investment freedom. Canada’s score of 75.0 reflects Canada’s treatment in foreign and domestic capital equally in most situations. As for foreign investments, a federal agency must approve all direct foreign investments. This requirement is unusual because most Organization for Economic Cooperation and Development (OECD) countries don’t require this. There are certain areas which restrict foreign investments, these are: aviation, telecommunications, fishing, mining and aviation However, the other areas have no restrictions when it comes to foreign investments (2010).

The seventh and eighth economic factors would be financial freedom and property rights.

In financial freedom, Canada’s financial system provides many options for businesses and competitive services for investors. Like the United States, Canada allocates credit based on the market. Around 90 percent of Canada’s total assets are accounted for by the ‘six big banks’. The Bank act of 2007 went through revisions which focused on issues which increased consumer protection and streamlined regulation for clients. There are restrictions, however, for mergers between large banks.

The largest insurance companies conduct more than half of their business overseas. Securities markets are well developed, but the regulatory system is fragmented.  In Canada, banking has weathered the recent financial crisis with no need for state funds.  As for property rights, Canada’s private property is well protected.

The last two economic factors are freedom from corruption and labor freedom. Canada is perceived as a country with minimal corruption as illustrated by the Transparency International’s Corruption Perception Index which rated Canada 9th  out  of 179 countries for corruption in 2008.

It can be concluded that Canada has a strong economy based on the Heritage Foundation’s Economic Index of 2010. Furthermore, Canada’s economy for the last ten years has been relatively consistent for the overall score received on the Index. For example, Canada’s economic freedom score in 2000 was 74.  In the time period of 2002-2004, Canada’s score was 77.  For the years of 2006-2007, Canada’s Index score was 78. Finally since 2008, Canada’s economy was been consistent with a score hovering around 80.

In addition to Canada’s economy being sound according to the Index, Canada’s gross domestic product (GDP) has shown increases in growth from 2003 to 2009 illustrated by the table below. The table gives GDP growth on an annual basis with an adjustment for inflation expressed as a percent.

Thus from the years 2005 to 2008, Canadian economic growth rate hovered around 2.675 percent. The table also illustrates that for two consecutive years, 2007 and 2008, Canada’s gross domestic product was estimated at about 2.7 percent. Canadian exports have been registering growth figures for over 5 years. GDP breakdown of Canadian exports were as follows: agriculture-2.1 percent, industry-28.8 percent, and services-69.1 percent. With the GDP’s growth of 2.9 percent, this growth makes Canada a high income OECD country with a GDP of 1.165 trillion. With this GDP increase, Canada’s economy in international benchmark U.S. dollar terms has grown 91% over the past decade, and 58% in the past four years alone (Wolf, 2006).

More recently, according to 2008’s Canada economic report, exports had increased by 8.76 percent to reach $440 billion. In regards to Canadian imports for 2008, total Canadian imports had risen to about $390 billion, an increase of about 11.66 percent over the previous year.

References

Canada economic report. (2010).Retrieved from http://www.economywatch.com/economic- report/canada.html

Potts, T., & Yerger, D. (2010). Variations across Canadian regions in the sensitivity to U.S. monetary policy.  Atlantic Economic Journal, 38, 4. p.443(12). Retrieved February 01,     2011, from General OneFile via Gale: http://ezproxy.ecc.edu:2059/gtx/start.do?prodId=ITOF&userGroupName=erieccn_main

Wolf, D. (2006). California dreamin’. Canadian Business, 79(6), 19. Retrieved from Academic Search Premier Database.