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GROWTH IN CANADA AND OTHER G7 COUNTRIES 1

Growth in Canada and

Other G7 Countries
In Chapter 20 we discuss the measurement of gross domestic product (GDP), a mea-
sure of the value of goods and services produced within a country in a given period of
time (usually a year). We also discuss how the production of goods and services gener-
ates income for factors of production and thus how GDP is an important measure
of national income. Since GDP is a measure of national income, it is no surprise that
much focus is placed on the growth rate of GDP as an indicator of improvements in
average living standards.
However, as we say in the textbook, the use of GDP growth as an indication of ris-
ing living standards can be problematic. Here we compare GDP growth in Canada to
that in other rich, industrialized countries and make the distinction between growth in
GDP and growth in per capita GDP. We also examine recent growth performance in
the different Canadian provinces, revealing that an overall rate of GDP growth for
Canada often hides substantial differences in provincial growth rates.

Real GDP Growth in Canada and the G7

The G7 group of countries includes the seven largest industrialized economies—the
United States, Japan, the United Kingdom, Germany, France, Italy, and Canada.
Because these countries are the most industrialized in the world, they are often consid-
ered as a group of “likes” and the performance of any one member is compared with
that of the other member countries.
Figure 1 shows real GDP growth in each of the G7 countries from 1994 to 2008,
based on data compiled by the International Monetary Fund (presented in its annual
publication World Economic Outlook) and the authors’ calculations. For each coun-
try, an index of real GDP is shown. Its value is set equal to 100 in 1994. Then the
actual growth rates of real GDP between 1994 and 2008 are reflected in the change in
the index numbers.
Note that Canada is shown to have the largest growth rate of real GDP among all
the G7 countries over this 14-year period. The index of Canadian real GDP was over
152 in 2008, meaning that between 1994 and 2008 real GDP in Canada grew by more
than 52 percent. The United States comes a close second with total growth over the
same period of 48 percent; in contrast, Japan brings up the rear with a growth rate of
only 19 percent.
Care must be used when comparing national growth rates over long periods
because the ranking of countries’ growth rates may be sensitive to the precise period
chosen. For example, perhaps Canada’s top-ranking growth rate from 1994 to 2008
reflects an unusually high growth period, especially when compared to the other coun-
tries. As it turns out, when the same comparison is made for growth rates from 1993 to
2006, Canada’s growth performance is just edged out by that of the United Kingdom,
but both Canada and the United Kingdom lie considerably above the United States and
the other G7 countries. But the general point remains: When comparing economic per-
formance over time, be aware that measures of performance may change (dramatically
sometimes) when the period under consideration changes.
A second point to note, as we mention in the textbook, is that real GDP is quite a
good measure of the level of economic activity within a country but is not necessarily

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2 GROWTH IN CANADA AND OTHER G7 COUNTRIES

FIGURE 1 Real GDP Growth in G7 Countries, 1994–2008

160
Canada U.S.A.
U.K. France
150
Index of Real GDP (1994 = 100)

Italy Germany
Japan

140

130

120

110

100
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year

(Source: Based on authors’ calculations using data from the Word Economic Outlook, Statistical appendix, Table 2,
International Monetary Fund, www.imf.org.)

a good measure of overall material living standards. A better measure of average

material living standards is real GDP per capita and even this measure misses many
things that we would all agree matter for quality of life, such as the extent of political
and religious freedom, cleanliness of the environment, distribution of income, and
other aspects of life that are not captured by the value of production.
Figure 2 shows indexes of real per capita GDP for the same seven countries over
the same period. Note, first of all, that the ranking over the seven countries is broadly
similar with the ranking in Figure 1. Canada has the second-highest growth of per
capita GDP, at 32 percent. Second, the difference between each country’s growth rate
in real GDP (Figure 1) and real per capita GDP (Figure 2) is due to that country’s
population growth over the 14-year period. For Canada, real GDP grew by 52 per-
cent while its per capita GDP grew by 32 percent—the difference of 20 percent is
Canada’s population growth from 1994 to 2008. The implied annual average growth
rate of Canadian per capita real GDP is 2.3 percent.

Real GDP Growth Within Canadian Provinces

Just as GDP growth in the G7 group of countries is not shared equally by the different
G7 members, the growth of real GDP within Canada in any given year is generally not
uniformly experienced by all of Canada’s regions. Table 1 shows the growth rate of real
GDP in Canada and the ten provinces and three territories for 2008, and reveals that
the various regions experienced very different growth rates.

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GROWTH IN CANADA AND OTHER G7 COUNTRIES 3

FIGURE 2 Real per Capita GDP Growth, 1994–2008

145
Canada U.K.
140
Index of Real per Capita GDP (1994 = 100)

U.S.A. France
Italy Germany
135 Japan

130

125

120

115

110

105

100
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Year

(Source: Based on authors’ calculations using data from the Word Economic Outlook, Statistical appendix, Table 3,
International Monetary Fund, www.imf.org.)

What explains the considerable variation

in provincial growth rates in 2008 in a year TABLE 1 Real GDP Growth in Canadian Provinces
when overall Canadian growth was 1 per- and Territories, 2008
cent? Note the very substantial growth rates
in Saskatchewan and Yukon Territory. An Real GDP
important factor in this growth was the con- Growth Rate (%)
tinuing expansion of mining and oil produc- Newfoundland and Labrador 0.0
tion amid relatively high world prices for oil Prince Edward Island 0.9
and minerals. At the other end of the growth Nova Scotia 2.0
ranking were Ontario, Alberta, and British New Brunswick 0.0
Columbia. Quebec 1.0
Ontario –0.1
Manitoba 2.4
Saskatchewan 4.4
Alberta –0.1
British Columbia –0.1
Yukon 5.2
Northwest Territories –6.5
Nunavut 5.5
Canada 1.0
(Source: Based on Statistics Canada “Real gross domestic
product, expenditure-based, by province and territory,” 2008,
http://www40.statcan.gc.ca/l01/cst01/econ50-eng.htm.)

Ragan, Economics, 14th Canadian Edition

Copyright © 2014 Pearson Canada Inc.