Study: The role of natural resources in real income growth, 1870 to 2010
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Driven by changes in natural resource prices, increases in Canada's 'terms of trade'—the ratio of export prices to import prices—have had a positive influence on Canada's standard of living during the past 140 years.
Increases in the terms of trade occur when export prices rise faster than import prices. As a result, exports can be exchanged for more imports. This raises the volume of goods and services Canadians can purchase, which supports consumption and investment, and thereby increases material standards of living beyond the changes in production captured by real gross domestic product (GDP) per capita.
The long-run improvement in Canada's terms of trade generated increases in real gross national income (GNI) per capita for Canadians that were larger than the increases in GDP per capita. Between 1870 and 2010, cumulative real GNI per capita growth was 18% larger than the cumulative growth in real GDP per capita.
Real GDP per capita is a measure of the production per person generated within a country. It is the usual measure employed to look at economic growth. Real GNI per capita is an alternative measure that looks at the purchases per person that a country can make with the income its citizens earn through productive activities, regardless of where that production occurs.
This study compared the growth in real GDP per capita with real GNI per capita between 1870 and 2010. During this period, a succession of natural resource products supported economic development and long-term increases in the terms of trade.
According to the study, real GDP and real GNI have shown different pictures of economic growth in Canada during particular periods because of the effect of resource price cycles. For example, between 2002 and 2007, real GNI per capita increased at an annual average rate of 3.1%, nearly double the 1.6% annual rate in GDP per capita.
This study also showed that although the terms of trade had cycles, there was a long-run upward trend. While increases in terms of trade were followed by decreases, the decreases were not sufficiently large to fully undo the effect of most of the gains. By 2010, this had generated a cumulative increase in the terms of trade of more than 90%. As a result, between 1870 and 2010, real GDP per capita grew at 1.87% per year, 0.12 percentage points slower than the 1.99% growth in real GNI per capita.
The research paper "Natural Resources, the Terms of Trade, and Real Income Growth in Canada: 1870 to 2010", part of the Economic Analysis Research Paper series (Catalogue number11F0027M2012079, free), is now available from the Key resource module of our website under Publications.
Highlights of the findings of this paper are available in the article "The Role of Natural Resources in Real Income Growth in Canada, 1870 to 2010", part of the Economic Insights series (Catalogue number11-626-X2012006, free), from the Key resource module of our website, under Publications.
Similar studies from the Economic Analysis Division are available online (www.statcan.gc.ca/economicanalysis).
For more information, or to enquire about the concepts, methods or data quality of this release, contact John Baldwin (613-951-8588) or Ryan Macdonald (613-951-5687), Economic Analysis Division.
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