Study: National output versus domestic output: A measure of economic maturity?

Recent international media reports suggest that the ratio of national output to domestic output reflects a nation's economic maturity.

The article "National output versus domestic output: A measure of economic maturity?" published in the December edition of Canadian Economic Observer, analyzes the relevance of these suggestions for the Canadian economy.

National output in this instance refers to gross national income, formerly known as gross national product. It measures the income earned by Canadians, or Canadian-owned capital, anywhere in the world.

On the other hand, gross domestic product (GDP), the more familiar term, measures the total value of output within Canada's borders, irrespective of foreign ownership.

Since 1998, Canada's gross national income has grown by 37.4%, nearly two percentage points faster than the rate of growth of 35.6% in GDP.

This may not seem significant. But in dollar terms, Canadians would have received $16.4 billion less income, the equivalent of $512 per person, if gross national income had grown only as fast as GDP.

Gross national income now represents 98% of GDP, up from 96% in 1998. This increase allows Canadians to spend more than GDP would support, as our foreign investments generate dividends while our external debt burden falls. Based on recent trends, Canada's gross national income could outstrip its GDP for the first time before 2010.

The difference between the two concepts reflects some of the fundamentals of an economy's structure. In the United States, gross national income is slightly higher than GDP. This reflects the high yield on the large stock of American investment abroad built up after the Second World War.

In Canada, gross national income was close to GDP until the 1970s. The sharp drop in gross national income relative to GDP in the 1970s and 1980s originated in the large build-up of Canada's foreign debt.

The rise in gross national income relative to GDP in Canada in recent years initially reflected a swing to a net inflow of dividends. This followed from the surge in our investment abroad, which in the early 1990s began to exceed foreign direct investment in Canada.

More recently, Canada has begun repaying the external debt built up in the 1970s and 1980s, leading to an $8.2 billion drop in the outflow of net interest income.

Definitions, data sources and methods: survey numbers, including related surveys, 1901 and 1534.

The feature article "National versus domestic output: A measure of economic maturity?" is now available free online. It is also available in the December 2004 issue of Canadian Economic Observer, Vol. 17, no. 12 (11-010-XIB, $19/$182; 11-010-XPB, $25/$243), which is now available.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Philip Cross (613-951-9162; ceo@statcan.gc.ca), Current Economic Analysis.