6 China syndrome, Dutch disease and central Canada

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Between 2002 and 2007, Quebec and Ontario began adjusting to the emergence of China as an economic powerhouse. Their manufacturing sectors shed jobs, shifting towards more durable goods production in Quebec while retrenching in Ontario. Despite the loss of factory jobs, construction and service sector employment more than made up the difference, leading to overall job growth and falling unemployment rates. Mining industries in both provinces benefited from rising prices, leading to higher employment and wages.

In both provinces, the rising terms of trade contributed to real income growth. However, the relative changes in import and export prices were quite different. In Ontario, export prices did not fall as fast as import prices: in Quebec, import prices declined while export prices increased.

In response to Asia's integration into the world economy, and the transition underway in Canada, consumer prices and investment prices have adjusted in both provinces. Prices for outputs have declined while prices for inputs and non-traded goods and services have increased.