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Real GDP and the Purchasing Power of Provincial Output

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  • Macdonald, Ryan

Abstract

This paper examines the impact of import and export price changes on economic welfare in Canada, and in each of the provinces. It examines how terms of trade shifts and fluctuations in the ratio of traded to non-traded goods prices affect the purchasing power of domestic production. Terms of trade shifts are shown to have a larger impact in the short-run. Moreover, the paper shows that failing to account for terms of trade shifts, when analysing macroeconomic data, can lead to misinterpretations about the sources of growth or decline in consumption, investment and imports. The magnitude and direction of terms of trade fluctuations, and their impacts, vary by province and over time. Changes in commodity prices are shown to have important effects. The effect of terms of trade shifts is largest in Alberta and Newfoundland and Labrador, while Manitoba is relatively unaffected.

Suggested Citation

  • Macdonald, Ryan, 2007. "Real GDP and the Purchasing Power of Provincial Output," Economic Analysis (EA) Research Paper Series 2007046e, Statistics Canada, Analytical Studies Branch.
    • Handle: RePEc:stc:stcp5e:2007046e
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    File URL: http://www.statcan.gc.ca/bsolc/olc-cel/olc-cel?catno=11F0027M2007046&lang=eng
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    References listed on IDEAS

    as
    1. Kohli, Ulrich, 2004. "Real GDP, real domestic income, and terms-of-trade changes," Journal of International Economics, Elsevier, vol. 62(1), pages 83-106, January.
    2. Ulrich Kohli, 2006. "Real GDP, Real GDI and Trading Gains: Canada, 1981-2005," International Productivity Monitor, Centre for the Study of Living Standards, vol. 13, pages 46-56, Fall.
    3. Diewart, W Erwin & Morrison, Catherine J, 1986. "Adjusting Output and Productivity Indexes for Changes in the Terms of Trade," Economic Journal, Royal Economic Society, vol. 96(383), pages 659-679, September.
    4. W. M. Corden, 1960. "The Geometric Representation of Policies to Attain Internal and External Balance," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 28(1), pages 1-22.
    5. W. E. G. Salter, 1959. "Internal And External Balance: The Role Op Price And Expenditure Effects," The Economic Record, The Economic Society of Australia, vol. 35(71), pages 226-238, August.
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    Cited by:

    1. Chris Ross & Alexander Murray, 2010. "Aggregate Measures of Income and Output in Canada and the United States: Implications for Productivity and Living Standards," International Productivity Monitor, Centre for the Study of Living Standards, vol. 19, pages 20-39, Spring.
    2. Macdonald, Ryan, 2007. "Canadian and U.S. Real Income Growth Pre and Post 2000: A Reversal of Fortunes," Economic Analysis (EA) Research Paper Series 2007048e, Statistics Canada, Analytical Studies Branch.
    3. Macdonald, Ryan, 2007. "Not Dutch Disease, It's China Syndrome," Insights on the Canadian Economy 2007017e, Statistics Canada, Economic Analysis Division.

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    Keywords

    International trade; Economic accounts; Gross domestic product; Income and expenditure accounts;
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