4 Concluding remarks

Relative price changes, whether from terms-of-trade or Salter-ratio fluctuations, have significant impacts on the purchasing power of domestic economies. By explicitly incorporating the trading gain into a real income measure, it is possible to more accurately describe and analyse regional economic performance. In a world where relative prices undergo large, rapid changes, real gross domestic product is a less than ideal real income measure, particularly when compared with a measure such as real gross domestic income. The inclusion of the trading gain allows for analysis that moves beyond production; in Canada’s case it explicitly includes the impact of the economy’s endowment.

The analysis here has shown that the impact of relative price changes can vary over time as economies evolve, and that understanding the composition of price changes is crucial for explaining changes in an economy’s real income growth. The Canadian economy is in the midst of a structural shift, much of which is fuelled by the relative price changes. By examining the structures of the provincial economies, and their differential response to relative price shocks, it becomes clear why Canada as a whole has done so well in the face of rising commodity prices and an appreciating currency with its largest trading partner, the United States.