North America

Ontario: The Borderland Economy

Source: RBC, predictions from March 2015

Source: Royal Bank of Canada, predictions of provincial economic growth for 2015, published March 2015

With the economy of Western Canada hit hard by the fall in oil and other commodity prices that began last year, Canada’s most populous province, Ontario, has begun to account for quite a large share of the country’s economic growth. Many Canadian economists – most of whom live in Ontario, as I do – assume this economic resilience is the result of Ontario’s economic diversity and size. Ontario’s population is much larger than that of any other Canadian province (see graph below), and its economy is mixed between services (in Toronto),  government (Ottawa), industry (southwestern Ontario), and commodities (northern Ontario). Ontario’s economy is also more oriented toward the auto sector than other provinces are, and so may be benefiting more than others from the fall in oil prices.

the provincials

Ontario accounts for around 38 percent of Canada’s population, compared to 23 percent for Quebec and 13 percent for British Columbia. Most other countries do not have provinces/states that are as large as this. California, for example, is the largest state in the US but has just 12 percent of the US population; source: Future Economics

Still, this may be missing the point to a certain extent. What really sets Ontario aside from other Canadian provinces is the proximity of large population centres in Ontario to large population centres in the United States. This is unique among Canadian provinces (see graph below), particularly if you ignore Quebec (which is separated from US populations by a language barrier as well as a political one) and British Columbia (which, perhaps not incidentally, is the other major province that has decent economic growth right now, in spite of the fact that it is a significant commodity exporter and has close ties to oil-rich Alberta). Ontario is the only province to have a handful of cities which straddle the US-Canada border. These include Detroit-Windsor, Buffalo-Fort Erie, Niagara Falls, Sault St Marie, and Sarnia-Fort Huron.

US-Canada 15

on_e

Since the US economy has remained relatively strong in recent years, unlike those of Europe, East Asia, or much of the developing world, Ontario’s ties to the US may be what is driving Ontario’s economic growth. This should make Ontario concerned; the US economy has not had a recession for almost eight years now, so, in a certain sense at least, it is due for one soon.

Below, I have tried to show some of the ways in which Ontario’s proximity to the US is unique. I’ve gathered all the data myself using Google Earth and recent Canadian and American censuses, so if you think you’ve found any errors in the following graphs please let me know.

us-can 50.pngcan-us 50 land:water.pngus-can 100.pngus-can 200 .png

us-can neighboursus-can 1st and 2nd degreelength us-can

US-Can real gdp.png

us-can gdp growth

[New Brunswick had zero in this category because Maine’s economy has been neither growing nor shrinking in the past year or so. Alberta and BC are high in this category because of the growth of Washington state and Montana, respectively. Saskatchewan and Manitoba were doing great in this category before the oil crash caused their shared neighbour North Dakota to go from the fastest-growing US state into a serious recession. Ontario and Quebec are roughly equal in this category because of the huge size of New York state, which they both border. However if you were to ignore New York state, then Ontario’s border states, namely Michigan and Minnesota, are growing much faster than Quebec’s border states, namely Maine, Vermont, and New Hampshire. Minnesota’s growth, meanwhile, is also why Manitoba is relatively high in this category in spite of North Dakota’s recession — as Minnesota’s  GDP is nearly seven times higher than North Dakota’s]

Ontario’s ties to the US have also meant that it is less dependent on inter-provincial trade of goods than other parts of Canada are: in recent years Ontario has conducted 2.5 times more trade with other countries (led by the United States, of course) than it has with other provinces. This is compared to just 1-1.5 times more for Quebec, Alberta, and British Colombia.

Economists and financial journalists in Ontario need to be more careful than they have been in the recent past. During the 2007-2009 economic crises they ascribed the relative success of Canada’s financial system (which is centred in Toronto, Ontario) to the fact that Canadian bankers and regulators were more prudent and conscientious than their peers in other countries, rather than to the fact that Canada was flush with capital at the time as a result of the sky-high commodity prices that existed just before and just after the financial crisis, and as a result of the fact that Canadian Baby Boomers  were then in the prime of their financial lives (as Canada, unlike the younger US or older Japan, is dominated by the Baby Boomer generation).

But instead of acknowledge these facts, much of the Canadian media decided instead to help create a cult of personality around Canadian bankers and Bank of Canada leader Mark Carney — a cult of personality they have since exported to Britain, where Carney has become a figure of great importance (especially since Brexit and the resignation of Prime Minister David Cameron) and the first non-Briton to ever become the central banker over the British financial system, a system that is far larger, far more worldly, and far less dependent on  commodity sectors than the Canadian financial system is. Similarly, Ontario’s economic resilience is now being described (by some people) as if it was basically an inherent condition of the Ontario economy, rather than a result, at least in part, of Ontario’s unique ties to the growing US economy.

Don’t get me wrong: I am not saying that Ontario is not a resilient place or that bankers and regulators in Toronto and Ottawa are not prudent and wise. And certainly I would like Ontario’s economy to continue growing, since it is my home. However, believing either one of these stereotypes about Ontario too much could be a dangerous mistake for investors or governments to continue to make.

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One thought on “Ontario: The Borderland Economy

  1. Pingback: Future Economics

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