This study presents an econometric model designed to project developments in the current account of the Canadian balance of payments. The exposition of the study is divided into three parts; Part I describes the general structure of the model; Part II contains the complete equation system of the model and summarizes the statistical estimates of the behavioral equations; Part III presents the results of testing the model for the years 1962–64, and the results of a projection made from the model for the current account in 1965.

In the model the trading world is divided into four regions: Canada, the United States, Western Europe, and the rest of the world. Merchandise trade transactions between each of these regions are treated by separate equations, as are non-merchandise trade transactions of Canada with each of the other three regions. The non-merchandise or service transactions are separated by category into expenditures for transportation, travel, interest and dividends, and all other services. Also included in the model are equations for gross national product (GNP), consumption, and inventory investment in Canada, the United States, and Western Europe, as well as equations for export prices in each of the four regions. The specification and structure of the model are based largely on a three-region world trade model of the US current account recently employed by Rhomberg. For purposes of the following discussion, the fifty equations contained in the model are consolidated into twelve general equations. The variables used in the equations are shown below: the subscripts 1, 2, 3, and 4 refer to Canada, the United States, Western Europe, and the rest of the world respectively.

The purpose of this paper is to examine the effects of international movements of labour and capital upon the commodity terms of trade. The development of the modern theory of international trade, initiated by E. Heckscher and B. Ohlin has enabled us to relax the classical assumption of complete immobility of factors among different countries, and to analyse the international movements of goods and factors within the same theoretical framework. Thus, both Heckscher and Ohlin emphasized the substitutive relationship between international trade and factor movements. But the effects of international factor movements upon the international terms of trade seem to have attracted comparatively less attention. Although the question known as the “transfer problem” was subject to detailed investigation, it is not concerned with the movement of factors of production per se.

Professors J. E. Meade and H. G. Johnson independently considered international factor movements from the long-run point of view, and presented rigorous analyses of their effects upon the commodity terms of trade. Meade dealt with the international migration of labour in order to give a theoretical basis to the regulation of migration, whereas Johnson made an ingenious use of Rybczynski's theorem to analyse the effects of international transmissions of productive power upon the terms of trade. The present paper attempts to push their analyses a little further by developing a general formulation of the problem within a neo-Heckscher-Ohlin trade model.

In Britain, a meeting of the Privy Council means a meeting of the Queen and three or more Privy Counsellors (at least four must be summoned, but only three need be present). Such meetings are, of course, summoned for purely formal purposes, but they are not infrequent. It used to be blandly assumed that similar meetings of the Queen's Privy Council for Canada had taken place only very rarely indeed. Successive articles by Professor Mallory showed that at least in the early years after Confederation this was not so.

Professor MacNutt, on the other hand, has suggested that, until Lord Lome's assumption of the Governor-Generalship, meetings of the Council with the Governor present were the rule rather than the exception, and that they were much more than merely formal. He says: “Shortly after his arrival in Ottawa, Lorne was astonished by an invitation to sit in Council with [his ministers] as public business was discussed. He was shown the high-backed, decorated gubernatorial chair in the cabinet room in the east block where Dufferin had sat like a Stuart monarch and sometimes summarily influenced debate. Lorne refused; most informed men were confused and mystified.”

A Robinsonian model is a two-sector model with fixed technical coefficients. Aside from Mrs Robinson's own work, similar models, without technical change, have been discussed in two major papers, one by I. M. D. Little and the other by R. Findlay. Mrs Robinson has criticized both these contributions on the ground that they do not treat the rate of growth or accumulation as an exogenous variable, but rather regard it as endogenous, emerging from the model after the real-wage rate has been given. In the first section of this paper I explore the conditions for stable equilibrium growth on Mrs Robinson's assumption of a desired rate of accumulation (a function of “animal spirits” and the rate of profit), and then add to the model neutral technical change of an appropriate sort.

In section II, the effects of introducing biased technical change are examined. I show that the model has “technological stability,” by which I mean that there is a tendency for technical change to be neutral. Predictions and tests about the movement over time of the consumption-good price of capital are made in section III. Finally, I end with a short comment on stability in the short run.

In their efforts to analyse the behaviour of households and firms, economists have traditionally assumed that each of these units maximizes an index, such as a utility function, a profit function, or a present value function, which is taken to characterize its own interest. However, in analysing government policies these same economists have generally shied away from the maximization-of-own-interest assumption and have instead assumed that governments maximize a social welfare function or the common good; or they have proceeded by developing ad hoc hypotheses for each different problem. This is regrettable, for the returns to the maximization-of-own-interest assumption in the analysis of household and firm behaviour have been impressive, even when due consideration is given to the simplification of reality that is involved. One cannot help suspecting that they might also be high in the analysis of government behaviour.

In consequence, in the present paper, following the lead of Schumpeter and Downs, I suppose that governments are not primarily interested in maximizing a social welfare function, or the common good, or the public interest—whatever these may be—but that instead they seek to maximize their own interest. Specifically, following Downs and Wilson, I assume that governments maximize the probability of their re-election, a probability which is dependent on the policies that are implemented as well as on the degree to which they are implemented. This relationship rests on the view that governments and their electorates are engaged in a sort of exchange in which policies are traded for votes; to maximize the probability of their re-election, governments endeavour to “produce” those policies which can be exchanged for the largest possible quid pro quo, that is, for the largest number of votes. Thus an analysis of government behaviour following a change in the preferences of consumer-voters, for example, would be to a large extent an analysis of changes in government policies. The potential number and variety of these policies, however, is so large that at first glance it seems impossible to proceed with a systematic analysis.