Ted Noakes' Writing Sample

British Columbia (B.C.) has long been associated with the production of wood products. Indeed, for most of the period since the arrival of European settlers the province has relied on this vast resource for its economic well-being. Many regions of the province still rely on the forestry industry and the production of wood products to fuel their economies. Even the largest city within the province, Vancouver, started out as a collection of logging camps along the shores of Burrard Inlet. It is often felt that wood products are the fuel upon which the province’s economic engine runs. As when British Columbia became the fifth province to join confederation, it is the production and well-being of the forest industry that is today thought of as driving the fortunes of British Columbia’s economic well-being and future growth .

Recent events have highlighted this belief. Worries persist in interior communities, where an insect infestation continues to ravage pine forests. Struggles over tariffs, that increase the price of Canadian softwood lumber in the American market, cause concern in regions where wood produced is destined for use in the United States (U.S.). It has been a habit for British Columbians to look towards events in the United States as a means of gaining an insight as to what the future holds. The well-being of the forest industry is, for many, indicative of the well-being of British Columbia as a whole.

As one of the measures of future prosperity, British Columbians often utilize U.S. housing starts to gauge British Columbia’s economic path. As much of B.C.’s lumber is exported to the U.S. for use in building houses, it is typically thought of as a useful economic indicator for the entire province. The demand for B.C.’s wood products serves to enhance economic activity in the province as a whole. But is this truly the case? Do British Columbian economic fortunes rise and fall with U.S. housing starts? Is there a substantial link between this sector of the U.S. economy and British Columbia? Do U.S. housing starts indicate what economic activity we can expect in B.C.?

In this paper we endeavour to answer whether or not U.S. housing starts are a good indicator for British Columbia. Through a series of economic systems models, we will investigate if and how U.S. housing starts play a role in British Columbian economic activity. We will also endeavour to find whether or not they can be used in predicting future activity in the economy of the province. It is our intention to examine the role U.S. housing starts play and use this to enhance the understanding of British Columbia’s underlying economic characteristics.

This paper is divided into seven separate sections. In the first section we provide a brief background and define the problem we intend to answer. In the second section we review previous literature in regards to economic systems, a background to economic development and indicators for Canadian regional economies, vector autoregressive (VAR) analysis, the use of economic indicators in forecasting and empirical models of regional and national economic activity. The third section focuses on describing the data and the methodology used throughout the paper, while section four begins a specific analysis of the data itself, investigating unit roots. In section five we take the information of our previous analysis and build models incorporating U.S. housing starts as a motivator of provincial economic activity. Section six uses the models in section five to predict future economic activity, forecast provincial series and assess U.S. housing starts as an economic indicator for British Columbia. Finally, section seven provides a concluding analysis and suggests areas for further research.