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The good news is manufacturing is not victim of Dutch disease: studies

The snaking pipes of a factory.

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A suggestion that a commodities boom has caused a decline in Canada's manufacturing sector is being challenged by two reports from the University of Calgary's School of Public Policy.

The first by Jack Mintz and Matt Krzepkowski argues that manufacturing has been in decline for decades.

It says data indicates that manufacturing has been falling over the last 35 years for most members of the Organization for Economic Co-operation and Development – including countries that don't have substantial natural resources.

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"Dutch disease is overblown," said Mintz, a tax policy expert.

"Really, when you look at what's happened to manufacturing both in Canada and the OECD and the United States over the past 30 years, there's been a general decline in manufacturing in all these countries."

The theory behind Dutch Disease – a term coined to explain the hollowing out of the manufacturing sector in the Netherlands – holds that a boom in the resource sector causes a currency to appreciate, undercutting exports of manufactured goods. It has some adherents among economists, including the OECD.

It became a political football in Canada last year when NDP Leader Tom Mulcair blamed Alberta's oil riches for some of the economic problems facing Ontario and Quebec.

Mintz and Krzepkowski argue that employment in manufacturing has been falling over the last 35 years throughout most OECD countries.

"Casting blame for lost manufacturing jobs on commodity prices ignores the inevitable fact that, even if the dollar begins to fall, it is unlikely that those lost jobs will return," the report reads.

The second report by Trevor Tombe and Wardah Naim finds a higher Canadian dollar may actually help manufacturing because of increased purchasing power, which the authors say lowers both the cost of goods and the cost of production.

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"A higher dollar may make it more expensive for foreign buyers to purchase Canadian manufactured goods, but that effect appears to be more than offset by the savings that Canadian producers enjoy with a higher dollar that makes possible cheaper imported-inputs and lower cost of production, which have a lowering effect on prices," the authors write.

Mintz said the Dutch disease debate in Canada is about politics.

"The NDP has pushed it partly because they're hoping to grab votes away from Ontario and certainly impact on the coalition that the Conservatives have built between Ontario and the West," he said.

"Obviously there's something else that is going on and policies that you need to address these things are going to be different. It's not a matter of closing down the oilsands to save the manufacturing industry."

Join the conversation on Canada's competitiveness by following Canada Competes on Twitter:@CanadaCompetes

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