Ontario economy falls further behind its neighbours

A recent study from the Fraser Institute showed that while Ontario remains a prosperous economy by global standards, it’s an economic laggard within its own region. Specifically, Ontario’s economy is smaller per person than that of any American states which, like Ontario, borders one of the Great Lakes.

What’s more, the gap is large.

The regional average of per-person GDP (a broad and useful indicator of economic prosperity, which measures economic production in the entire economy) is $78,012—or 32.7 per cent larger than Ontario, after adjusting for currency differences. Even the worst performing nearby U.S. state for this indicator, Michigan, has an 8.4 per cent larger per-person GDP than Ontario.

And this already worrying gap has grown considerably over the past two decades. From 2001 to 2020, weighted annual average inflation-adjusted economic growth per person was 0.9 per cent. This is hardly robust growth, but it’s meaningfully higher than Ontario’s 0.4 per cent.

In total, the regional average increased by 18.5 per cent, compared to just 6.5 per cent in Ontario over this time period.

Of course, this means that the prosperity gap between Ontario and the rest of the region has grown considerably.

In 2001, the regional average GDP was 24.3 per cent higher than Ontario’s. As we have seen, in 2001 that gap was 32.7 per cent. In other words, an already large gap in living standards in the favour of nearby U.S. states (compared to Ontario) has continued to grow over the first two decades of this century.

These data have important implications for the well-being of Ontarians. Ontario’s lower overall level of economic production and weak growth rate has translated into less job creation, slower wage growth and more pressure on government finances than would be the case if the province had been able to generate robust growth during this period.

Although Ontario is a prosperous place by global standards, within the Great Lakes region it’s an economic laggard. What’s more, the gap between Ontario and the rest of the region—in terms of economic production and pace of growth—has grown over the past two decades. This large and enduring gap is one of the most important policy challenges facing Ontario.