If you’re an entrepreneur who is looking to invest in Canada, one of the top questions in your mind would be, “how is the economy of Canada characterized?” This question unravels a lot about how the Canadian economic system is operated or controlled.
Most entrepreneurs are wary of the negative effects of investing or starting a business in a communist nation where a command-based economy is run. In such areas, the prices of goods and services are solely determined by the government, making it a big hurdle for a business to break even.
That’s why we’ll be discussing the economy of Canada, how it’s characterized and how viable it is for entrepreneurs. Read on to find out the type of economy Canada runs, the Canadian industries you can invest in and many more. Let’s start by knowing what makes up the economy of Canada.
What makes up Canada’s economy?
The Canadian economy is made up of several viable sectors. The service sector takes up about two thirds of the economy of Canada. However, there are other major players like the real estate sector, manufacturing and natural resources sectors. The agriculture and the information, communications and technology (ICT) sectors are not left out.
The Canadian economy is rich with both human and natural resources, making it one of the best countries for doing business in the world.
What type of economy does Canada operate?
Canada, just like every other developed country, operates a mixed-market economy. This is an economic system where the forces of demand and supply determine the prices of goods and services, and the products to be produced under the interventions of the government.
The Canadian government imposes taxes, tariffs, subsidies and other forms of economic regulations to stabilize its economy. The reason is to generate revenue to maintain its service-based economy, protect its local industries and natural resources, while ensuring its economy remains valuable and viable in the global market.
Where does Canada’s economy rank in the world?
According to Wikipedia, Canada’s economy is the 8th largest in the world by nominal GDP and the 15th largest by PPP (purchasing power parity) GDP.
The 2022 nominal GDP estimate for Canada is $2.221 trillion, while the PPP GDP is $2.237 trillion.
What are the major drivers of Canada’s economy?
The major drivers of Canada’s economy are the human resources, natural resources, and production sectors. Human resources ensure the natural resources are put into productive ventures, thereby attracting revenue, foreign investment, and more human resources to the country.
Canada makes billions of dollars annually by exporting energy products, automotive, industrial goods, agricultural products, consumer products, and many more. These are the factors that drive Canada’s economy to be high above many others.
What are Canada’s top industries?
According to Investopedia, the top industries that contribute massively to Canada’s economy are real estate, manufacturing, and mining.
Canada’s real estate industry
The Canadian real estate industry is a major contributor to its robust, stable economy. As a country with many resources, Canada attracts both human and capital investments. The more of these investments Canada receives, the more its real estate industry expands and gets valuable.
People spend massively buying, renting, or leasing office spaces, residential homes, business establishments, etc. The real estate industry generates approximately $250 billion annually for Canada, and it’s projected to continue to grow in the next decade.
Canada’s manufacturing industry
Canada’s manufacturing industry produces tons of finished and semi finished goods annually to service its consumers and export to other countries. It manufactures and exports foods, petroleum, chemicals, automotive, metal equipment, machinery, and many more.
The manufacturing industry employs over two million people in Canada and generates over $178 billion in revenue annually.
Canada’s mining industry
With Canada being blessed with natural gas, crude oil, oil sands, coal and a wide range of mineral resources, the mining, quarrying and oil extraction sector is a major economic contributor. The country generates a lot of revenue by refining and exporting these resources.
The mining industry employs approximately 380,000 people annually and generates over $140 billion in revenue.
What are Canada’s top trading partners?
Canada enjoys a special trading relationship with the USA, China, and the UK. The relationship between Canada and these countries has helped foster Canada’s economy, create jobs, and make Canada look more viable in the eyes of potential investors.
Canada’s trading relationship with the USA
The US doesn’t just share borders with Canada; they enjoy a long-standing relationship on virtually everything. Aside from being key allies and defense partners, the trade relationship between the two countries ranks among the best in the world, with close to $1 trillion in transactions. In fact, Canada is the United States’ number one trading partner and so is the US to Canada.
Canada’s major exports to the US are crude oil, crude bitumen (oil sands), coal, vehicles, nuclear reactors, gold-silver, etc. The US’s major exports to Canada are machinery and mechanical appliances, transportation equipment, chemicals, plastics, and leather products.
Canada’s trading relationship with China
Canada has a cordial trading relationship with China because of its position as the world’s leading exporter. This relationship is very beneficial to both parties, though Canada recorded a balance of trade (BOT) deficit in their transactions in 2021.
Canada exported goods worth US$22.97 billion and imported goods worth US$51.51 billion. The major Canadian exports to China are ores, slag, ash, mineral fuels, oils, distillation products, and timber. While China sent mainly electrical and electronic equipment, machinery, nuclear realtors, boilers, furniture, and many more.
Canada’s trading relationship with UK
Following Brexit, the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) no longer covered the UK. Therefore, the two countries entered into a new trading agreement on the 1st of April 2021. The Canada-United Kingdom Trade Continuity Agreement (Canada-UK TCA) sees to it that the two countries will continue to recognize the certificate of good manufacturing practice (GMP) issued by the regulatory agencies of each country.
The UK is Canada’s third-largest trading partner. Canada had a BOT surplus with the UK in 2021. Its total exports to the UK in 2021 amounted to $12.93 billion, and that of the UK to Canada amounted to $7.02 billion. Canada’s major exports to the UK are pearls, precious stones, metals, coins, machinery, boilers, mineral fuels, etc. And the UK’s major exports to Canada are also pearls, precious stones, and metals.
How does the major resources of Canada affect its economy?
Canada’s major resources, like crude oil, natural gas, mineral fuels, coal, precious stones, etc., generate export revenues, which the government uses to create more job opportunities. International companies locate production plants in the country because of these resources, thereby creating more jobs and improving the purchasing power and standard of living of Canadians.
Furthermore, the availability of these resources increases the economic viability of Canada, which attracts numerous investments to the country.
Conclusion on how the economy of Canada is characterized
We can conclude now that the economy of Canada can be characterized as a highly developed mixed-market economy. Market forces determine the prices of goods and services, but government regulations play a huge role in ensuring nothing goes to extremes.
Canada is a viable economic country, and the World Bank ranks it among the easiest countries to do business in 2022. The taxes and regulations are favorable to entrepreneurs, too. This makes it a very suitable location for your business operations.
I hope you found this article valuable. If you have any questions or contributions, leave a comment below.
