Convergence in Canada?

Abstract

There have been a number of empirical studies focusing on regional convergence in recent years. These are becoming increasingly important since many industrialized countries are faced with difficulty financing regional distribution and stabilization programs. Barro and Sala-i-Martin (1992) analyze unconditional convergence for the United States. Holtz-Eakin (1993) extends their analysis to test conditional convergence. He finds that, in addition to the initial level of output per worker, both physical and human capital accumulation, the rates of labour force growth, technological progress, and depreciation are significantly correlated with growth in output per worker. In addition, Coulombe and Lee (1994a, b) focus on regional disparities in Canada over the 1961-1991 period and conclude that there is evidence of convergence in Canada for different measures of per capita income and output. Lee and Coulombe (1994) extend the analysis further and suggest that labour productivities converged faster than per capita incomes in Canada. Surprisingly, there has been no empirical analysis that considers the effects of human capital, private and public investments, migration and industrial structure on productivity growth and convergence in Canada. However, determining factors that are pertinent to regional productivity growth and convergence is particularly important for policymakers, since these factors can guide them to allocate scarce resources more effectively. The purpose of this paper is to determine these factors and arrive at some policy implications.