Did housing kill exports?

Between 2002 and 2008, Canada shed 328,000 manufacturing jobs.

The common explanation is that high commodity prices and a rising loonie sucked away jobs and hollowed out goods-making industries.

But was something else at work? Citing trends in Europe, two OECD economists, Balázs Égert and Rafal Kierzenkowski, argue that ballooning property prices may also be to blame. That’s what happened in France between 2000 and 2007, when the trajectory of house prices and production prices in manufacturing diverged sharply.

Construction sector wages shot up, likely luring manufacturing workers. And since construction was so profitable, capital probably moved in the same direction. Resource reallocation from export-oriented manufacturing industries into real estate has hurt France’s export performance, which has been sluggish for the past decade, argue the economists.

By contrast, they say, Germany’s declining house prices might have helped boost its manufacturing and exports.

In Canada, mining and oil and gas weren’t the only booming industries between 2002 and 2008. Housing staged a spectacular rally and, in a free-market economy, capital and labour move toward sectors with higher returns. Manufacturing ultimately lost out.