Canadian Economy in Recent Years,

Canadian Economy

In recent years, Canada's economy has quickly developed into an international leader. Even the Canadian Dollar has eclipsed the United States Dollar in might. The question is, what is the cause of Canada's robust economy? One major contributing factor is the role of international business, whether that be imports, exports or buyouts. The increase in international takeovers in Canada cannot be ignored as a reason for the economic turnaround, however, there is the lingering question of whether or not this increase in international takeovers is actually hollowing out the Canadian economy and, if so, will this eventually set the economy heading in the reverse direction.

This paper will examine these questions. First, an overview of the Canadian economy will be presented. Second, an overview of international takeovers will be given prior to the development of a final analysis on these questions.

Overview of Canadian Economy

Canada has an average gross domestic product of $34,494 per capita.

Further, Canada is ranked 14th in quality of life and operates under a free-market economy set-up. A free market economy is one where the price of a product is arranged and accepted by both buyers and sellers, therefore operating on a supply and demand (as opposed to a government regulated) economic system.

Under such a system, Canada has become one of the world's wealthiest nations and a member of such international economic powerhouse groups as the G8 and the Organization for Economic Cooperation and Development. Its economy differs from that of the United States in that, although still a free market economy, it has more government intervention. However, its level of government intervention is much less than that typical of Western European economies. Recently the Canadian economy has been experience a period of rapid growth and low unemployment.

Much of Canada's economy is based on such industries as manufacturing, agriculture and mining. Today, although its logging, oil and agricultural sectors still play an important part of Canada's total economy, the vast majority of its economic activity is centered on the service sector. In fact, three fourths of all Canadian workers are employed within the service sector.

According to Michael Howlett, much of the reasoning for Canada's developed economic status stems from its highly diversified economy, which leads to having multiple options for international exporting of various goods (opposed to being dependent on a single export market). For example, Canada's economy is unique in that it is a net exporter of energy, one of the few developed nations to do so. This is a result of the country's large natural gas deposits located in the east and its large oil deposits found in the providence of Alberta. In fact, Canada has the world's second largest oil reserve behind Saudi Arabia, due in much part to the presence of the Athabasca Tar Sands. Another form of exported power is hydroelectric power, popular in the providences of Quebec, British Columbia, Newfoundland and Labrador, Ontario and Manitoba. With much of these populations using hydro-electrical power, more of the country's oil resources can be used for exporting. (Howlett, 1992).

Further, Canada also has one of the world's leading agricultural-based economies, supplying much of the world with grain-based products such as wheat. Although not as powerful as it once was, Canada's mining trade is still a leading producer of uranium and zinc, along with exports of gold, nickel, aluminum and lead. (Howlett, 1992).

Canada is also a leading player in global trade, acting not only as a major exporter, but perhaps as an even larger importer of foreign goods. One of Canada's main trading partners in the United States of America. The two countries established a free trade agreement in 1989 amongst each other. With the implementation of 1994's North American Free Trade Agreement, both Canada has witnessed a large increase in trade with the United States. (Howlett, 1992).

Canada has been able to successfully achieve this robust economic status through careful monetary and fiscal policy planning. According to David Longworth of the Bank of Canada, Canada's economy's strength comes from the basic value of money that is a result of the country's controlled inflation efforts. With a controlled inflation, inflation is low, stable and predictable, which means that the Canadian dollar remains stable, valuable and thus encourages consumers to spend. Spend then leads to the prosperous economy. According to Longworth, "the reason (the bank) insist on keeping inflation in line is because this is the best contribution the bank can make to a healthy economy." In other words, keeping inflation low, stable and predictable is key to keeping the economy "on the smoothest possible track for long-lasting economic growth and job creation," says Longworth. By doing this, the Canadian public and private monetary policy is able to avoid an inflationary "boom-and-bust" cycle is one of the leading causes to recessions and increased rates of unemployment. "To put it another way, the Bank's focus on inflation means that the gap between the potential and actual performance of the economy can be kept as narrow as possible."

III. The Negative Side of the Canadian Economy

On the flip side of the careful monetary policy planning is the government's fiscal policy planning, or, according to some, lack of planning. According to Pierre Fortin, Canada is currently facing a looming fiscal problem that is essentially macroeconomic in nature. According to Fortin, the essential problem for Canada is its uncontrolled public debt, which is fourth behind only Belgium, Greece and Italy. Fortin states that the rising government indebtedness has "three major consequences." First, over time it will make the country poorer due to its crowding out of investment and foreign debt and higher tax rates. Second, the public finance sectors, such as discussed above, will become destablilized and more sensitive to variations in interest rates. Finally, the expanding interest payments on these debts require citizens to receive "declining amounts of public goods and services in exchange for rising taxes." This generates deep frustration and "contaminates the quality of democratic life." Because all three of these elements are starting to show signs of existence in Canada, the excellent standing of Canada's economy that exist today is in jeopardy.

IV. The Increase in Foreign Investment

As a result of Canada's strong economic status, many foreign investors have been attracted to the country, which has led to numerous foreign corporate takeovers. However, according to statistics, this increase in foreign investors has not created a hollowing out effect in corporate Canada but in fact has played a significant role in the strengthening of the economy. Statistics show that foreign investors have actually created more head-office jobs in recent years as compared to Canadian corporations. (Vieira, 2007).