Deconstructing the sources of economic growth

In my TJ column tomorrow I will be taking another stab at the question I am frequently confronted with – why does the government attract multinational firms when the focus should be on New Brunswick small businesses.  This has been the number one question I have received over the years and I have had a devil of a time trying to explain it.

The simple answer is that 95% of all small businesses generate their revenue in their local economy – lawyers, accountants, doctors’ offices, coffee shops, electricians, etc.   In order for one lawyer to generate more revenue, he/she needs to take the work from someone else.  These multinationals coming into the province (be clear I am talking about the ones brought in by an organization such as Invest NB not Walmart or Costco’s local retail operation), are almost exclusively export-based businesses meaning that their economic activity will bring money into New Brunswick and grow the economy.    Then lawyers, doctors’ offices, coffee shops and electricians will have a bigger pie to fight over.

If you compare NB to the strongest economy in Canada – Alberta, you get a clearer understanding of this.   Look at the GDP created in export-intensive sectors of the Alberta economy compared to New Brunswick.  That has huge spillover effects into other sectors of the economy that are more locally oriented.   Note that the sectors where the GDP spread is the lowest – public administration, health care, utilities and education are those sectors that are primarily publicly funded.

 

New Brunswick doesn’t generate as much GDP from exports as we are told.    We constantly hear that New Brunswick is one of the most export heavy provinces or states in North America.  That is true but there is a huge difference between exports and GDP particularly in the oil refining sector which gobbles up 68 percent of the total value of product exports.

We don’t have the New Brunswick data because it is suppressed but the Ontario data is very revealing. In 2008, the petroleum and coal products manufacturing sector [NAICS 324] in Ontario generated $22.4 billion worth of industry output but only $1.3 billion worth of GDP.   If you don’t believe these numbers, you can check out CANSIM tables 381-0015 and 381-0016 yourself here.

This doesn’t downplay the importance of the oil refinery in Saint John.  If it generates $500 million worth of GDP that is still a huge number but you can’t compare that to the $7.5 billion worth of exports in 2008.

All this to say that New Brunswick shouldn’t focus on exports per se but on GDP from export activity.

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2 Responses to Deconstructing the sources of economic growth

  1. PS – if it costs $7 billion to import raw crude and $8 billion comes out the other end the GDP is part of the billion left over.

  2. The real win with exports comes when many <40 employee sized firms begin exporting, become more competitive, increase profitability and grow their firms to 100+ employee sized firms.

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