So-called ‘Dutch Disease’ has actually left Canada’s economy much stronger, economist says – by Jen Gerson (National Post – September 6, 2013)

The National Post is Canada’s second largest national paper.

A Quebec-based economist is trying to squelch the “Dutch Disease” theory long touted by New Democratic Party leader Thomas Mulcair, claiming the phenomenon has actually left Canada’s economy much stronger.

“The increase in commodity prices is a good news story for Canada. It means there is increased world demand for something Canada produces,” said Stephen Gordon, author of a report released Thursday by the University of Calgary School of Public Policy.

“What happened is that we shifted workers away from a declining sector and into an expanding sector. That’s exactly what you’d expect, and it’s what you’d want because it results in higher wages.”

The economic premise of Dutch Disease has long pinned the decline of central Canada’s manufacturing sector to growing oil production in Alberta.

The term is an economic shorthand that describes the hollowing out of a country’s manufacturing sector after the discovery of natural resources; the subsequent increase in the value of currency makes exporting manufactured goods uncompetitive.

The theory became a popular mantra for left-leaning politicians after Mr. Mulcair began to claim Canada suffered from the condition last year.

However, Prof. Gordon, an economics professor at the University of Laval, Quebec, tried to debunk the theory in his report, The Canadian Manufacturing Sector, 2002-2008: Why is it Called Dutch Disease?

While Canada did lose manufacturing jobs as its commodity-driven dollar grew more valuable, the country as a whole is much better off as a result of increasing oil production, Prof. Gordon said.

The 328,000 manufacturing jobs lost in 2002-08 were mostly through attrition, rather than mass layoffs or plant shutterings.

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