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Debunking myths about developing B.C.’s natural resources by Philip Cross

Resource Works, a new B.C.-based think-tank, recently released a study that explodes some commonly-held myths about natural resources and B.C.’s economy. The study used Statistics Canada’s Input/Output Accounts to trace the direct and indirect impacts that an expansion of B.C.’s resource sector would have on incomes and jobs in B.C. The results will come as a surprise to many.

The first myth is that resources are too small to significantly affect the total economy. Instead, B.C.’s resource industries have the potential to boost Gross Domestic Product by whole percentage points, far more than the mere fractions touted by governments when adopting new trade or tax policies. A 10-per-cent nominal increase in B.C.’s resource sector boosts its GDP by $3.7 billion, or 1.9 per cent of its GDP. Every dollar of additional output in natural resources generates $1.74 of higher incomes in B.C

A second myth is that natural resources don’t create many jobs. While resources are capital-intensive, they also buy a wide array of services as inputs. As a result, B.C. adds 29,561 jobs due to the growth in its resource base, a 1.3-per-cent boost to its overall employment. While the natural resource sector represents a small share of employment, its contribution to over-all employment growth is significant because of its spending in the jobs-rich services sector elsewhere in B.C. These include business and financial services such as engineering, accounting, banking and legal services, in which knowledge of local regulations is necessary. Moreover, these are mostly full-time, well-paying jobs, the type most coveted.

Most surprising is that the majority of the jobs created are in the Lower Mainland, not the rural regions of B.C. This reflects the Lower Mainland’s role as a source of financial and business services and as a transportation hub. Just more than half (16,413) of all the jobs created in B.C. are in the Lower Mainland.

Two things explain why the Lower Mainland reaps the most benefit from developing B.C.’s resources. First, developing natural resources creates more jobs in the service sector than in the resource sector itself. While rural B.C. is the primary beneficiary from extracting natural resources, the spinoff of increased demand for services mostly benefits Vancouver and the Lower Mainland. The Lower Mainland reaps two thirds of all the services jobs flowing from expanding resource output. This reflects the fact that most of the professional and financial services are in Vancouver, as well as the importance of the Lower Mainland’s transportation services, especially for exports overseas. Second, the Lower Mainland has a substantial presence in two key resource industries: agriculture and the processing of resources by manufacturers.

The 10-per-cent change in nominal resource output assumed in the simulation has frequent precedents, having occurred in at least three and probably five years since 2002. Furthermore, it is a myth B.C.’s resource sector follows a boom/bust cycle with no net growth over time. Instead, it has posted a strong upward trend since the 1990s, with exports more than doubling.

In developing B.C.’s natural-resource base, all levels of government have an opportunity to affect growth by whole percentage points, not fractions of a point. Most of the activity generated by growth in the resource sector stays in B.C., with little going to imports from the rest of Canada or from abroad.

Good government policy should support the expansion of B.C.’s natural resource industries to create and secure higher incomes and more well-paying, full-time jobs in the province.

Philip Cross is a senior research fellow at Resource Works and former chief economic analyst at Statistics Canada

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