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Tuesday, November 9, 2004

Study: Provincial gross domestic product per capita

1990 to 2003

Through the 1990s and early 2000s, Alberta's gross domestic product (GDP) per capita accelerated away from the national average. Over the same period, GDP per capita among the remaining provinces began to converge, according to a new study.

The study examined the differences in economic output per person, as measured by GDP per capita, across the provinces and territories during two separate periods: 1990 to 1997 and 1997 to 2003.

The first period was marked by a major recession and a restructuring of the economy that resulted in part from the implementation of the Canada-US Free Trade Agreement and the North American Free Trade Agreement. The second period was one of relatively strong economic growth and revived gains in labour productivity.

These macro-economic trends were reflected in provincial rates of GDP per capita growth. Growth rates in provincial GDP per capita during the 1990 to 1997 period were relatively small compared with those between 1997 and 2003.

Looking across the whole period, Alberta increased its GDP per capita from 117% of the national level to 140%.

For the other nine provinces, those with the highest levels of GDP per capita in 1990 (Ontario and British Columbia) tended to experience weak GDP per capita growth. In contrast, provinces with relatively low levels of GDP per capita in 1990 (Saskatchewan and the Atlantic provinces) tended to experience strong growth. The result is a group of provinces whose levels of GDP per capita have become more tightly packed over time.

Alberta's GDP per capita continues to outpace other provinces by a wide margin

Between 1990 and 2003, only per capita GDP in Alberta and Ontario exceeded the national level. Over this period, Alberta accelerated away from the national level while Ontario drifted back towards it.

In 1990, Alberta and Ontario's GDP per capita were, respectively, 117% and 112% of the national level. By 2003, Alberta's GDP per capita was 140% of the national level, while Ontario's had dropped to just 105%.

GDP per capita increased relative to the national level in all four Atlantic provinces. Newfoundland and Labrador's rise was particularly dramatic. Its GDP per capita rose from 65% of the national level in 1990 to 92% in 2003, with all of its growth occurring after 1997.

Quebec experienced little change in it relative level of GDP per capita.

In the Western provinces, Manitoba and British Columbia fell behind, while Saskatchewan and Alberta gained relative to national levels.

Saskatchewan increased its relative level of GDP per capita from 86% in 1990 to 95% in 2003, while British Columbia fell from 98% to 91%. By 2003, Newfoundland and Labrador and British Columbia had about equal levels of GDP per capita.

Real GDP per capita growth stronger after 1997

Changes in the relative levels of GDP per capita across provinces are caused by changes in the relative growth rates of the volume of output and by relative growth in prices received for the products of different provinces. The former is a measure of constant dollar or "real" GDP per capita.

Nationally, real GDP per capita increased at an average annual rate of 0.9% between 1990 and 1997. During the late 1990s, the growth rate had tripled to 2.7%. The slow growth during the early period reflected the sharp recession. The faster growth in the later period reflected a major turnaround in almost all key economic indicators.

Atlantic region mirrors trend in Newfoundland and Labrador

Newfoundland and Labrador experienced relatively moderate growth in real GDP per capita between 1990 and 1997. But by the turn of the millennium, it reported the highest growth rate of GDP per capita in the country.

In general, the entire Atlantic region mirrored Newfoundland and Labrador's experience of relatively low growth in real GDP per capita in the early 1990s and faster growth at the turn of the millennium.

Between 1990 and 1997, GDP per capita grew at an annual average rate of 1.1% in Newfoundland and Labrador. During the 1997 to 2003 period, this rate had soared to 7.8%. Growth also accelerated by 0.9 percentage points in Prince Edward Island, 2.7 points in Nova Scotia, and 2.0 points in New Brunswick.

In Newfoundland and Labrador, the gain was propelled by crude oil production from offshore fields, with the Terra Nova oil field coming on stream early in 2002.

In Ontario and Quebec, the average annual growth rate of GDP per capita between 1997 and 2003 exceeded that of the early 1990s by at least two percentage points.

Diamonds add luster to the economy of Northwest Territories

With a population of about 100,000, less than 1% of the national total, the three territories account for one-third of Canada's area. A large proportion of the North's economy is concentrated in mining, a capital intensive sector that is subject to large price fluctuations.

Between 1990 and 1997, the Yukon and Northwest Territories (Nunavut had not yet come into existence) both experienced a decline in real GDP per capita.

However, the sources of this decline were different. In the Yukon, it was the poor performance of the labour market; in the Northwest Territories, it was a poor performance in productivity.

During the 1990s, the Northwest Territories experienced a major turnaround, the result of a surge in the mining sector after the discovery of an exploitable diamond vein 300 kilometres from Yellowknife. This new activity has generated important spillover effects, particularly in terms of job creation in the construction and transportation sectors.

A first mine began operations in 1998 and a second one in 2003. Between 1997 and 2003, the operations of these two diamond mines contributed to the rebound in economic output in the Northwest Territories. Its real GDP per capita increased at an average annual rate of 11.8% between 1999 and 2003, compared with a decline of 0.7% between 1990 and 1997.

Sources of growth in real GDP

Several factors contributed to the growth in real GDP per capita across the provinces during the 1990s.

This study found that those provinces experiencing high growth rates in real GDP per capita also experienced high growth in labour productivity, as well as favourable labour market conditions.

Growth in the 1990 to 1997 and 1997 to 2003 periods was driven predominantly by gains in labour productivity growth. Labour productivity captures how effectively resources, or hours worked, are used to produce output. As a result, it is not surprising that growth in output per hour worked played such an important role in growth in real GDP per capita in most of the provinces.

Newfoundland and Labrador, the province with the fastest growth in real GDP per capita between 1997 and 2003, boasted labour productivity growth that was a full 2.1 percentage points above its closest competitor.

Of all factors driving growth in real GDP per capita, labour market conditions, that is, employment rate plus labour intensity (hours worked per worker), were also an influential factor.

For example, between 1997 and 2003, labour market conditions largely bolstered growth in real GDP per capita in all provinces, except Saskatchewan, Alberta and British Columbia. These three reported the slowest growth in GDP per capita in Canada during this period.

The research paper Catching Up and Falling Behind: The Performance of Provincial GDP per Capita from 1990 to 2003, no. 24 (11F0027MIE2004024, free) is now available online. From the Our products and services page, under Browse our Internet publications, choose Free, then National accounts.

Additional information on related papers that describe provincial economic performance can be found at our economic analysis site on the page Updates on economic analysis.

For more information, or to enquire about the concepts, methods or data quality of this release, contact John Baldwin (613-951-8588), Micro-economic Analysis Division.

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Date Modified: 2004-11-09 Important Notices