Canadian Convergence

Mark Brown and Ryan MacDonald at Statistics Canada have just released a Research Paper on Canadian provincial convergence and divergence of per capita household disposable income from 1926 to 2011.  They find that while there has been convergence over time, it has proceeded in fits and starts with periods of external shock such as the Great Depression or resource booms leading to periods of divergence. 

When they plot the dispersion of provincial per capita household disposable income relative to the national average (See Figure 1) you can see divergence during the Great Depression, general longer term convergence from the late 1940s to the mid 1990s and then divergence related to the recent resource boom.  Of course, the data is available on CANSIM Table 384-5000 and the numbers are pretty interesting when you start to look at some specific combinations. 

Figure 2 plots the ratio of Ontario’s real per capita household disposable income to that of other provinces and regions. For the comparison with the Atlantic provinces and Manitoba and Saskatchewan, the average real per capita household disposable income was taken across the provinces used.  Over the 1926-2013 period, convergence has meant that the rest of the country has been approaching Ontario levels of real per capita household disposable income.

In the 1930s, real per capita household disposable incomes in Ontario were twice as high as Atlantic Canada and Manitoba and Saskatchewan and about 50 percent higher than Quebec and Alberta.  The ratio has come down ever since and at present Ontario is about 10 percent higher than Quebec and Atlantic Canada, on par with Manitoba and Saskatchewan and lower than British Columbia and Alberta.  What I also found interesting is that the Ontario/BC ratio for most of this time period was relatively stable and it has only been since about the year 2000 that the ratio has entered a steady period of decline.

Overall? Looks like regional disparity is not what it used to be.

Comments

[Nick Rowe]

This always makes me wonder what the mechanisms would be, that would create convergence. Diminishing returns to capital, given labour, as in Solow? Or migration and diminishing returns to labour, given land, as in Ricardo/malthus?

[Livio Di Matteo]

Nick: I suppose another question that would spring to my mind is how much of the regional convergence in household disposable income is a function of the impact of tax and transfer systems that came into play after WWII at both the individual (employment insurance, pensions) and intergovernmental level (transfer payments).