An Analysis of the Effects of Exchange Fluctuations on Employment, Output and Productivity in Canada

Abstract

Since the adoption of the North American Free Trade Agreement (NAFTA), the Canadian dollar has come to be regarded as a petro-currency. Consequently, rising prices of oil and gas (as well as other natural resources) would increase capital inflows that would lead to a higher exchange rate and contribute to the decimation of the export-oriented Canadian manufacturing sector by making Canadian products less competitive internationally. Some have argued that the Canadian economy has started to show symptoms related to the Dutch Disease. One important symptom is the slow rate of productivity growth, which consequently leads to the theory that Canada’s productivity performance depends significantly on the foreign exchange value of the domestic currency. This dissertation attempts to address these issues and seeks to solve the question of whether the Canadian economy is suffering from the Dutch Disease, as well as whether or not movements of the Canadian dollar are responsible for the low Canadian productivity growth since the 1990s.