Consider Doing Business in America? The United States and Canada is the 2nd Largest Economic Region Globally

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 Oct 16, 2017 Economics , Global Expansion , International Business   Canada , USA  Aidan O'Neill

Consider Doing Business in America? The United States and Canada is the 2nd Largest Economic Region Globally

The United States (U.S.) and Canada generated a combined GDP of $20.234 trillion, second only to East Asia globally. However, this number grew a modest 1.58% in 2016. According to OECD data, the U.S. forecasts growth of 2.14% in 2017 and 2.38% in 2018, while Canada forecasts 2.83% and 2.34% respectively.

In 2016, the U.S. accounted for 92% of the total economy for this region, which amounts to a GDP of $18.56 trillion. 79.5% of economic activity is derived from the services sector. US firms are at or near the forefront in technological advances, especially in computers, pharmaceuticals, and medical, aerospace, and military equipment. The remainder of the economy is comprised of industrial (19.4%) and agriculture (1.1%).

The U.S. is a Collection of Smaller State Economies

It is well known that the U.S. has one of the largest economies in the world. In reality, the U.S. is made up of many much smaller economies (states), each with unique inputs, advantages, and challenges. Like the broader U.S., each state’s economy is complex.

Wallet Hub’s ranking of state economic performance compared all 50 states plus D.C. They included 23 metrics, ranging from GDP growth and business startup activity to venture-capital funding per-capita and%age of jobs held by scientists and engineers. Each measure was weighted and divided into one of three categories: economic activity, economic health and innovation potential.

This methodology ranked the following states as the best performing economies in the U.S.:

  1. Washington
  2. California
  3. Utah
  4. Massachusetts
  5. District of Columbia

The ranking listed the following states as the worst performing:

  1. Oklahoma
  2. Arkansas
  3. Mississippi
  4. Louisiana
  5. West Virginia

For the first quarter of 2017, total GDP  in the United States rose by 1.2%. Contributors to this growth are highlighted below.

  • The real estate industry grew 2.7%, contributing to growth in 44 states.
  • Mining grew 21.6% nationally. This industry contributed to growth in 48 states. It was the leading cause of growth in Texas, West Virginia, and New Mexico, which grew 3.9%, 3.0%, and 2.8% respectively.
  • Finance and insurance declined 2.1% nationally. This industry subtracted from growth in 45 states as well as D.C.
  • Retail declined 3.6% nationally, subtracting from growth in every state.
  • According to this economic update by the Bureau of Economic Analysis, agriculture, forestry, fishing, and hunting declined 8% nationally. This industry subtracted from growth in 39 states. South Dakota, Iowa, and Nebraska were most affected. Real GDP in these states declined 3.8%, 3.2%, and 4.0%, respectively.

California’s Economy Now the Sixth Largest in the World

As measured by GDP (Current USD), California’s GDP of $2.56 trillion USD ranked as the sixth largest economy in the world in 2016, behind only the United States as a whole, China, Japan, Germany and the United Kingdom. California’s economy is not stagnating; it is growing so quickly that experts think the state will overtake the United Kingdom this year for number five on the list.

California’s economic growth of 2.9% last year was nearly double the U.S. average and the seventh best among the states. For the first quarter of 2017 however, California’s GDP remained virtually flat with a growth rate of 0.1%, as shown on Chart 1.

Although Q1 2017 showed flat growth, California’s unemployment rate fell to 4.7% in May, the lowest in nearly 17 years

U.S. Favorable for Starting a Business

According to the World Bank’s “Ease of Doing Business Index”, the U.S. is the eighth easiest globally for starting a business. However, the convenience varies significantly depending on the location within the U.S.

GOBankingRates.com prepared a report on “The best and worst states to start a business”. The report considered the following factors:

  • Startup Activity (based on the rate of new entrepreneurs, opportunity share of new entrepreneurs and density of startups)
  • Business Survival Rates (based on the ratio of new business formations to failures)
  • Productivity (based on GDP per capita)
  • Availability of Employees
  • Education Level of Potential Employees
  • Business Tax Climates
  • Cost of Living

Hawaii, Maine, and Vermont are the least favorable places in the U.S. to start a new business, while Wyoming, Alaska, and Nevada are the top three. The full report provides context for each state’s ranking. Variability still exists between specific cities or regions within a state. Consider discussing options with a Blueback Global business advisor before deciding where to start a new business in the U.S.

Canada

In 2016, Canada accounted for 8% of the total economy for this region, or a $1.674 trillion USD GDP, making it the world’s 17th largest economy. Spanning 9,987,670 square kilometers, Canada covers the 2nd largest geographic territory in the world, behind only Russia and just ahead of the U.S.

Canada resembles the U.S. in its market-oriented economic system, the pattern of production, and high living standards. 70.7% of economic activity is derived from the services sector. The remainder of the economy is comprised of the industrial and agricultural industries (27.7% and 1.6% respectively).

Canada’s exports totaled $380.1 billion USD, including motor vehicles and parts, industrial machinery, aircraft, telecommunications equipment; chemicals, plastics, fertilizers; wood pulp, timber, crude petroleum, natural gas, electricity, and aluminum. Canada’s largest trading partner by far is the U.S., which accounts for 76.7% of its exports.

Canada is a major exporter of electricity to the U.S.

Blessed with vast natural resources, Canada generates electricity from a diverse mix of sources. Electricity produced from renewable and nuclear sources is primary energy because it is captured directly from natural resources, while electricity from fossil fuels is secondary energy because it is produced from primary energy commodities such as coal, natural gas, and oil. The most important source in Canada is moving water, which generates 59.3% of its electricity supply. Canada is the second largest producer of hydroelectricity in the world.

Canadian Electricity Exports by Region

Canada exported a total of 73.1 terawatt-hours of electricity in 2016, an increase of 7% from the previous year. The value of this exported electricity was $2.32 billion (XE.com).

Fossil fuels are the second most important source of electricity in Canada. 9.5% of its electricity comes from coal, 8.5% from natural gas and 1.3% from petroleum. Fossil fuel generation is particularly important in Alberta and Saskatchewan, where several power stations have been built adjacent to large coal deposits. Fossil fuel generation is also important in the Atlantic Provinces, Northwest Territories, and Nunavut.

Canadian industries include transportation equipment, chemicals, processed and unprocessed minerals, food products, wood and paper products, fish products, petroleum, natural gas. Agricultural products include wheat, barley, oilseed, tobacco, fruits, vegetables; dairy products; fish; forest products.

As with the U.S. (ranked #8 in Ease of Doing Business Index *), it is relatively easy to start a business in the Canada (ranked #22 in Ease of Doing Business Index). Also like the U.S., this ease varies by province, region, and city. Consult with our experts at Blueback Global to determine where in Canada is the best target for global expansion.

NOTE: the World Bank ranks 190 countries globally in terms of ease of doing business relative to other World Bank members in it’s “Ease of Doing Business Index” .

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