Staples Thesis Canada

Staples Thesis Canada-84
Many of the problems that Innis identified can be put down to bad choice for an exchange rate policy.A depreciating currency can go a long way to mitigating the effects of a bust, and to moderating a boom.

Many of the problems that Innis identified can be put down to bad choice for an exchange rate policy.

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Indeed, you can take a typical staples thesis argument, substitute the word “manufacturing” for “resources,” and get a fairly convincing argument for why it’s dangerous to over-specialize in manufacturing. It’s also clear that the income generated by resource exports has been broadly shared, or at least as broadly as the income from manufacturing exports.

“The manufacturing trap” is as good a way as any to describe the fate of the former industrial heartland in the U. This was not inevitable, and much of the credit can go to Canada’s culture of governance.

There are many “ifs” in that paragraph, but these themes have resonated for decades in Canadian public policy debates.

They’ve also been used to make the case for encouraging manufacturing over resources. — these measures amount to little more than pork-barrel pandering to a populous province with an important manufacturing sector, that’s not what Innis had in mind.

When exchange rates are fixed — and the gold standard is a form of fixed exchange rates — a reduction in the prices of Canada’s exports leads to an outflow of reserves in order to balance Canada’s payments.

In effect, this forces Canada to respond to a downturn by contracting the money supply, amplifying the effects of the original negative shock.

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The standard staples thesis narrative has an obvious starting point: economies like Canada’s that are rich in natural wealth have a comparative advantage in resources, so commodities will form the bulk of our exports. For one thing, commodity prices are volatile, and result in destabilizing cycles of booms and busts.

Moreover, if economic development is driven by capital accumulation and technical progress, and if those are more likely to occur in the manufacturing sector than in the resources sector, the prospects for long-term growth are weakened.

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