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Harper gov't funded study arguing Canada suffers from 'Dutch Disease'

OTTAWA - The Harper government has funded research that argues Canada's economy suffers from so-called Dutch Disease, an economic theory the prime minister and other senior officials ridiculed when raised recently by NDP Leader Tom Mulcair.

Industry Canada paid $25,000 to three academics to produce the lengthy study, which is about to be published in a prestigious journal, Resource and Energy Economics.

The department also helped the trio build a database so they could investigate Dutch Disease, the theory that a resource boom that drives up the value of a country's currency can damage the manufacturing sector.

The paper, "Does the Canadian Economy Suffer from Dutch Disease?," concludes that a third or more of job losses in Canada's manufacturing sector can be attributed to resource-driven currency appreciation.

"We show that between 33 and 39 per cent of the manufacturing employment loss that was due to exchange rate developments between 2002 and 2007 is related to the Dutch Disease phenomenon," says the study.

The research, more than 18 months in the making, was carried out in part by Serge Coulombe, an economics professor at the University of Ottawa, who says Industry Canada was highly supportive of his work.

"At the time, they were interested in knowing about the issue," he said Friday in an interview, noting the final paper was subject to a "very deep external refereeing process."

"This paper has been presented at Industry Canada... and they have helped us assemble the database."

The contract to produce the Dutch Disease paper ran from 2008 to 2009, and allowed the three authors to publish the work rather than have it remain internal to Industry Canada, which

Coulombe said would have raised questions about its neutrality.

A spokeswoman for Industry Minister Christian Paradis said the study does not reflect the views of the Harper government.

"Unlike Mr. Mulcair, our government believes resource development is an important component of the economy and creates hundreds of thousands of direct, indirect and induced jobs, as well as contributing heavily to equalization payments," Margaux Stastny said in an email.

"Mr. Mulcair's politics of division, pitting one region of the country against others, and his ill-informed remarks show that his foolish economic policy will raise prices and cost Canadian jobs."

Coulombe is well-known at Industry Canada, where he was paid as a senior research adviser to the department's chief economist between 2005 and 2008. He has also been given more than 20 research contracts on economic issues by federal departments, including the Finance Department, the Bank of Canada, Statistics Canada and Human Resources and Skills Development.

The Harper government has vilified Mulcair for suggesting the Alberta oilsands have given Canada a case of Dutch Disease. Cabinet ministers have accused the NDP leader of pitting region against region and insulting hard-working workers in the resource sector.

The issue was repeatedly raised Friday in the House of Commons, where Tory House leader Peter Van Loan and MP Kellie Leitch, parliamentary secretary to the minister of human resources, both took jabs.

"Let us talk about issues of disparaging people," Leitch said in response to a question about employment insurance.

"The leader of the Opposition wants to call Canadian employers a disease."

Mulcair has said oilsands development is being carried out without properly accounting for the cost of its environment impact. His comments have triggered the ire of Western premiers, including Alberta Premier Alison Redford.

Alberta's NDP leader, Brian Mason, said Friday that Mulcair will travel to Edmonton at the end of the month for meetings with political and business leaders.

There is no consensus among economists about whether Canada suffers from Dutch Disease.

A report this week from the Institute for Research on Public Policy suggested Canada's strong dollar has hurt 25 per cent of total factory output, mostly in small, labour-intensive industries such as textiles and apparel.

Attempting to debunk the notion that an increased reliance on oil exports is hollowing out Central Canada's manufacturing base, the report concluded that cyclical factors and global competition are mostly to blame for the decline in factory production in Canada over the last decade.

Dean Beeby reports for The Canadian Press.

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