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Canada - Economy

Canada is a modern industrialized economy whose economic output and growth are enhanced by its highly educated population and intense use of capital. In 2005, Canada's population of 32.3 million was about 11 percent of the U.S. population while Canadian real purchasing power parity (PPP) GDP was approximately 9 percent of U.S. real GDP (table 1).1 Canadian real PPP disposable per capita income is about 64 percent of the U.S. level. Canada depends much more on trade than does the United States: its export and import shares of real GDP are both around 41 percent, approximately 3 and 2.5 times the respective U.S. shares The three largest categories of Canadian exports are energy, automotive and truck vehicles and parts, and wood and furniture products. On the import side, motor vehicles, computers and nonelectrical machinery, and chemicals are the dominant traded goods. Agriculture was 7 percent of Canadian exports and 6 percent of Canadian imports.

Canadian industry depends more on primary industries (agriculture, forestry, and mining) then does the United States, and basic manufacturing, and less on services and information technology. Primary industries' share of real GDP was 6.5 percent for Canada and 2.3 percent for the United States; agriculture has a 1.4-percent share of GDP in Canada and a 0.8-percent share in the United States. Canada's energy and forestry products industries export heavily to the United States. While Canada is somewhat more dependent upon overall manufacturing than the United States, the mix of manufacturing activity differs between the two countries. Transportation, wood and paper, and metals account for 43 percent of Canadian manufacturing, while these industries account for 37 percent of U.S. manufacturing.

High-tech manufacturing is much more important in the United States than in Canada. Manufacturing of computers and their components, other electronic goods, and publishing accounted for 33 percent of U.S manufacturing compared with 10 percent of Canadian manufacturing. Finally, the service economy in the United States has an 8.5-percent larger share than in Canada. Finance, insurance, and real restate services as a percentage of industry output were 2 percent higher and computer and communication technology services 1.5 percent higher in the United States than in Canada. Canada's capital structure influences the composition of its output and trade. Almost 75 percent of Canada's capital stock is in land and structures compared with 33 percent in the United States.

To overcome the relative scarcity of labor compared with its large land base, Canada's capital to labor ratio was 14 percent higher than the U.S. ratio in 2002. The greater capital intensity in Canada reflects a rational response to its large land mass, its highly educated work force (over 44 percent of Canadians over 15 years of age had a post-high-school education), and its highly developed economy. Canada's highly developed capital structure and its long open border with the United States encourage economic specialization to achieve economies of scale in production. This specialization results in Canada's concentrating production in industries such as light vehicle parts and assembly and wood and energy products, where it has significant product and cost advantages.

Canadian exports were 3.5 percent of world exports in 2004. Canada's export and import shares of GDP have expanded sharply since the early 1990s. The United States and Canada are each other's major trade partner. In general, Canadian trade reflects Canada's role as an exporter of raw materials, importer of finished consumer and business capital goods, and the importance of the North American automobile industry.

Canadian exports to the world and to the United States are heavily concentrated in the areas of passenger vehicles and transport trucks, mineral fuels and oils, and wood, paper, and furniture. Canadian exports reflect both comparative advantage in factor endowments and bilateral intra-industry trade in similar products fueled by economies of scale, product differentiation, and specialization in various stages of the production process. Canadian imports are concentrated in the areas of passenger vehicles and transport trucks (especially parts), computers, and electrical and nonelectrical machinery. The share of Canadian exports to the United States has expanded since 1990 while the U.S. share of Canadian imports has fallen, primarily because of increased competition for U.S. exports from China, Mexico, and Southeast Asia.

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