Study: The resource boom: Impacts on provincial purchasing power

From 2003 to 2007, the rising price of commodities, falling import prices and the appreciating dollar led to gains in purchasing power for most provinces.

During this five-year period, real gross domestic income (GDI) per capita in Canada, increased at an annual average rate of 2.9%. At the same time, real gross domestic product (GDP) per capita rose at an annual average rate of 1.7%.

In every province, except Prince Edward Island, the growth in real GDI per capita exceeded the growth in real GDP per capita.

The magnitude of these recent gains in real GDI differed across provinces, as did the changes in relative prices that brought about provincial trading gains.

Rising export prices versus falling import prices

Unlike the early 1980s, when only a select number of commodities had large swings in prices, the post-2002 period stands out because prices of almost all commodities increased.

Both the appreciation of the Canadian dollar, and the downward pressure placed on the prices of many manufactured products by China's integration into the global economy, decreased import prices for a wide range of goods in Canada.

For many provinces, these falling import prices were as important as, or more important than, rising export prices for bringing about terms of trade improvements.

On average, Canadian import prices, which declined by 2.6% per year from 2003 to 2007, contributed more to terms of trade growth than export prices, which rose about 1% per year.

This pattern of falling import prices and rising export prices is not consistent across provinces.

In Quebec, Manitoba, Alberta and British Columbia, the terms of trade rose as export prices increased, while import prices decreased.

In Newfoundland and Labrador, Nova Scotia, New Brunswick and Saskatchewan, export prices grew faster than import prices, leading to terms of trade improvements.

In Ontario, export prices declined more slowly than import prices, leading to a rising terms of trade. In Prince Edward Island, export prices declined and import prices rose, leading to a deterioration in the terms of trade.

Larger impact after 2002 than previously seen

The combination of falling import prices and rising commodity export prices led to a widespread sharing of benefits from terms of trade improvements across Canada, something that had not occurred in the last 25 years.

While individual provinces experienced differing import and export price changes, the impact has generally been the same, improved terms of trade. In the case of Newfoundland and Labrador, the terms of trade driven trading gain accounted for 5.6 percentage points of the 9.5% average annual growth in real GDI per capita from 2003 to 2007.

In the 1980s, when oil prices declined swiftly, there were terms of trade deteriorations in oil producing provinces that were offset by terms of trade improvements in oil importing provinces. However, between 2003 and 2007, trading gains were an important source of real income growth for most provinces.

Role of economic structure

While most provinces benefited, some received larger trading gains than others. The differences in trading gains reflect differences in productive activity across provinces.

Although all provinces have a range of goods and services industries, in many cases provincial exports are dominated by a particular type of commodity.

On average, from 2003 to 2007, energy products in Newfoundland and Labrador accounted for 69.4% of exports by value. In Prince Edward Island, agriculture and fishing products accounted for 68.0% of exports.

In Quebec, machinery and equipment accounted for 35.4% of exports, while, in Ontario, automotive products accounted for 43.3% of exports.

In Alberta, energy commodities accounted for 69.0% of exports, while, in British Columbia, 40.5% of exports were forestry products.

The research paper "The resource boom: Impacts on provincial purchasing power" is now available as part of the Insights on the Canadian Economy Research Paper Series (11-624-MIE2008021, free) from the Analytical studies module of our website.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Ryan Macdonald (613-951-5687), Micro-economic Analysis Division.