Question

(A) Do you think that exports of oil from Alberta will result in a higher, sustainable standard of living for Canadians? Explain your answer with reference to Canada’s economic history, the Staples Thesis and the Resource Curse.

(B) Would Canada’s prospects for an improved standard of living be better with a pipeline to access foreign markets (for example Keystone to the US or Gateway to BC tidewater in order to access Asian markets)?

(C) An alternative proposal is to build a pipeline from Alberta to Eastern Canada and encourage more upgrading and refining of raw bitumen to capture more of the value added from the resource. In addition, by selling oil to the East at the below the world price, manufacturing in central Canada could be stimulated. discuss the implications of this strategy compared to the one in b)?

(D) Should Canada have used the recent renegotiation of NAFTA to reconsider free trade with the United States and instead to use tariffs to protect domestic manufacturing in Canada? Refer to Canada’s economic history.

Answer 1

Answer (A) : Export of Oil from Canada has been a matter of hot debate since a long time now, with many of the Canadian experts and Globally renowned economists ascertaining that the export of oil from Canada) as such from Alberta, which is the largest Oil producing province in Canada) will leave a negative impact on Canada’s economy. Many economists have put forward their theories on the same. One of the well-known such theory is the Staple thesis. In the Staple thesis, the export history of many food materials (also known as staple) was studied in a detailed and a comprehensive statistical analysis was carried out, which finally showed that the export of the Staple from Canada not only weakened the country’s economy in the longer run, but also drowned the country of the economic factors of production. The resource curse also explains how a nation which is not self sufficient in the availability of factors of production or the resources of productivity, should not venture in to large scale export of those critical staple or other items which are deemed critical for the self-sustainability of the nation. Thus, the export of oil from Alberta will not result in to any higher or sustainable standard of living for the people of Canada.

Answer (B) : Canada is a developing economy with very scarce availability of the resources of productivity or the less availability of the factors of production. In such a circumstance, building a pipeline to access foreign markets would mean that the demand from the foreign markets would have to be met. The nature of trade balancing is that when two countries enter to trade, both the countries need to provide adequate amount of the demand of the foreign country in order to import the necessary products in the home country. However, if we study the pattern of the availability of resources in Canada, it will be very difficult for Canada to continue providing adequate amount of Oil supplies to the foreign countries when its buildings the pipeline thus accessing the foreign Oil markets. Therefore, the idea of building this new pipeline might be more of a bane for Canada than being a boon.

Answer (C) : The Idea of building an alternate pipeline from Alberta to Eastern Canada to encourage the upgradation and the refining of the raw material such as raw bitumen and thereby capture more of the value-added returns from the resource upgradation is perhaps a much better idea. This pipeline would serve as a lifeline for the economic development of the country in the sense that this will result in the increased availability of resources or the availability of raw materials for production would increase, thereby creating a pool of factors of production. These factors of production in the longer run would be adequate to take care of the local needs of the country and also support any future demands from the foreign countries. Once this pipeline is set up, in the longer run, Canada will have enough resources to build the other desired pipeline to access the foreign markets. Canada would then be in a much better position to meet the demands of the foreign countries.

Answer (D) : The economy of Canada is not fully self-sufficient and have not yet achieved the economic sustainability where it can sustain without large scale imports from the United States. The recent renegotiation of NAFTA was a good platform for Canada to reconsider free trade with the United States, because United States is a huge contributor to the upkeep of the Canadian economy. A large chunk of exports is carried to Canada from United States on a daily basis. Canadian economy is very much dependent on the supply of materials and goods from the United States. In such a scenario, importing tariffs on the imports from the United States may hit the economy of Canada very hard, thus creating a huge trade imbalance and the balance of payment enlarging its footsteps. This financial pressure on the Canadian economy could be detrimental to its growth. Therefore, it was worth accepting the proposal of NAFTA for a free trade with the United States.