A Macro Interpretation of Economic Theory from the Great Depression: Australia vs. Canada

This paper tests a simple macro model for an open economy over 1926-1939 for Canada and Australia. A component analysis of annual changes in real income for the two countries is presented using the residuals from the estimated equations (consumption, exports and imports) plus annual changes in investment and government expenditures. The results show a strong correlation between the recovery in Canada with the U.S. and in Australia as compared to Britain. The Canadian recovery was export-led while for Australia recovery was generated largely by investment.