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This paper examines the economic responses of Ontario and Quebec to the resource boom for the period 2002 to 2007. It details where change occurred, and its magnitude.
The rapid rise of commodity prices, the accompanying rise in the exchange rate, and foreign competition acted as a catalyst for restructuring in Ontario and Quebec. Ontario and Quebec are the largest economies in Canada, and although they have resource industries, their economies are manufacturing oriented. The large increases in resource prices and changes in the exchange rate between 2002 and 2007 raised input costs for, and reduced the competitiveness of, their manufacturing industries. At the same time, rising commodity prices stimulated investment in resource industries and changed relative prices, particularly the terms of trade. When confronted with changes in input costs, competition, and relative prices, the economies in Ontario and Quebec adjusted – employment moved between industries, some areas retracted while others expanded, and incomes changed.
These adjustments are discussed through the course of the paper. Changes in Ontario's and Quebec's economic structures are compared and contrasted, and a number of issues are discussed. They are outlined below.
- How did the manufacturing industries in Ontario and Quebec react?
In Ontario, real manufacturing GDP declined in nearly every manufacturing industry. The confluence of rising input costs, falling competitiveness as the dollar rose and competition from emerging nations, particularly China, led to a general retrenchment of manufacturing activity. Overall, real manufacturing GDP declined by an average of 1.1% per year.
In Quebec, real manufacturing GDP tended to decline in industries that produce consumer goods – clothing and textiles, paper, printing and furniture – and tended to increase in industries that produce capital goods. The manufacturing saw some industries decline while others grew, but there was little overall decline in manufacturing GDP.
- How did employment change in Ontario and Quebec?
Employment adjusted across industries. Manufacturing employment in Ontario had an average annual decline of 3% between 2003 and 2007. In Quebec, manufacturing and forestry, fishing, mining, oil and gas extraction saw average annual declines of 3% and 2% respectively. However, in both provinces, employment gains in other areas, particularly construction and services, more than made up for the job losses, contributing to annual average job growth of 2% in both provinces.
Job creation in Ontario and Quebec was sufficiently strong that unemployment rates declined despite the strongest foreign competition in many years, a rapid appreciation of the exchange rate, and record setting commodity prices. Ontario's unemployment rate dropped from 6.9% to 6.5%; Quebec's unemployment rate declined from 8.4% to 7.0%.
- What happened to the terms of trade in Ontario and Quebec?
In Ontario and Quebec, the terms of trade improved between 2002 and 2007, but for different reasons. In Ontario, the appreciating dollar forced manufactures to lower their prices to compete in the United States and export prices declined. However, the appreciating dollar and foreign competition lowered import prices even more. Ontario's terms of trade rose as a result. In Quebec, the terms of trade improved as export prices rose and import prices fell. Rising commodity prices, particularly for metal ores and metal products were the source of the increase in export prices.
- Did domestic prices in Ontario and Quebec reflect the forces re-shaping employment and manufacturing?
The CPIs in Ontario and Quebec reflected the rising commodity prices, increased importance of services and the influence of foreign competition. The prices of many durable and semi- durable goods stopped rising in the late 1990s, and were in decline for most of the post-2000 period. Prices for non-durables began rising more quickly, as did services prices, at the same time that durable and semi-durable goods prices stopped rising, and began declining.
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