The share of exports in aggregate demand began rising in the 1970s, after hovering around 20% during the 1950s and 1960s. However, the increase in the share of exports in GDP has been exceptionally high in the 1990s; after averaging about 25% in the five years leading up to the Canada-U.S. Free Trade Agreement, exports as a proportion of nominal GDP (that is, unadjusted for price changes) soared above 40% by 1998, the highest of any G7 nation.(f.1) Imports have mirrored the trend in exports, with trade across the U.S. border being the driving force for both.
This paper uses Statistics Canada's Input-Output tables to examine various aspects of imports and employment embodied in exports over the 1986-to-1995 period. It determines the value added to GDP embedded in the exports of over 550 specific commodities. Value added is the net contribution to output by an industry, after all the intermediate inputs from other industries are subtracted from its gross output. Because all inputs are tracked to their origin, the tables capture the direct and indirect contributions of various industries to exports. The value of the imports in these exports is the difference between the total value of the exports and the domestic GDP content. The GDP in exports can then be compared with total GDP to determine the degree to which Canadian incomes are dependent on foreign markets.
The importance of trade to the economy does not come from an excess of exports over imports; rather, it is from the productivity gains that accrue with increased specialization. In 1995, the value-added output per worker was nearly one-third higher in the export sector than in the overall economy (Chart E). (The largest GDP per employee was in capital-intensive resources such as mining, chemicals, petroleum and lumber. With capital use factored in, however, their total multifactor productivity may not have been as high.) Moreover, this gap grew nearly 10 percentage points after 1991. As more resources are shifted to industries with above-average labour productivity (and incomes), overall GDP may rise. However, it is difficult to quantify this process, as the incremental changes to production occur at a highly, detailed level, and because it is impossible to sort out other factors, notably technological change.