OPENNESS IN THE CANADIAN ECONOMY - 1870-1988

The causal relation between openness and GDP and between exports and imports are examined. Causality tests carried out in growth rates showed that over the period 1870-1988 openness, both narrowly and broadly defined, Granger-causes GDP growth; tests for the inverse causality produced mixed results, validating causality from GDP growth to export plus import growth, but rejecting causality from GDP growth to export growth; it was also found that export growth causes import growth, but not the opposite. Causality tests over four subperiods indicated the importance of openness for only the earliest phase of Canadian economic development. While the absence of causality in the later subperiods is largely compatible with the experience of the industrial countries, no meaningful comparison can be made between the experience of Canada and that of developing countries owing to causality variations of openness and to large differences in resource endowments.