Welcome to Canada

December 13, 2019 | Sam Rook


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Canada Tour: Part 3

What is the right level of immigration to allow? I don’t know the answer and I don’t think anyone has the right answer but there is one thing that is factually true. Without immigration our economy will start to shrink!

 

To first understand the importance of immigration, we must first understand two important drivers of GDP growth. Population and productivity. There are a bunch of inputs that go into a country’s Gross Domestic Product measurement but they are all influenced by the number of people in a country and how much those people can produce in a given year. Economies that can grow their population AND be more productive year by year are stronger economies. The United States’ greatest advantage is their combination of population growth and incredible productivity growth.

 

Population grows only two possible ways. Births and immigration. It is generally accepted that the replacement-level birth rate for a country is 2.1 births per each woman. Here is what the birth rate in Canada has looked like since 1921 per StatsCanada.

 

 

We have been below the replacement-level birth rate for almost 50 years! It’s an astonishing bit of data. How has our population grown to over 37 million people in 2019? The simple answer is immigration and lots of it. This graph is from a different report by StatsCanada.

 

 

If our population is growing, why isn’t our economy doing better? Remember, the other input that impacts GDP is productivity, and in Canada it’s historically been very cyclical. That makes sense when you think about it. We are a resource dependent economy and that makes us more susceptible to the whims of the global economy. The best image for our cyclical economy is business investment which can be seen in this chart from Martin Wolf of Fidelity, which I brought up in Part 2 of the series.

 

Pierre Claroux of BDC had this great chart in the same Maclean’s article that shows the cumulative impact on investment when compared to the trend prior to the Global Financial Crisis.

 

 

If businesses aren’t investing in new equipment and technology it’s only a matter of time before labour productivity stalls out, which is what has happened in Canada in the last few years. If you are looking for the culprit for our tepid economy, look no further.

 

The obvious solution to labour productivity is more business investment. The obvious solution to the population side of the equation is more immigration. To believe otherwise is silly and flies in the face of reality. We had a fringe political party run in this year’s election with a platform to reduce total immigration quite significantly from current levels. We have poor business investment which leads to low productivity, so why would we also want to cut the population growth? It’s the only thing holding up our economy right now.

 

I will end with this great graph cribbed from the Conference Board of Canada’s “Imagining Canada’s Economy Without Immigration” showing the projected impact to GDP growth of cutting off immigration. That blue “No Immigration” line is a death sentence for our economy.