Labour Productivity Growth in Canadian Manufacturing: A Regional Analysis

Abstract

In this paper an analysis of growth in labour productivity in the manufacturing sectors of six Canadian regions over the period 1962–84 is presented. A review of trends in labour productivity indicates that significant regional differences persist throughout the study period. Specifically, labour productivities in Atlantic Canada and in Manitoba and Saskatchewan are significantly lower than those in central Canada and the far western provinces. A model that decomposes growth in labour productivity into the contributions of growth in the capital-labour ratio, scale economies, and technical progress while controlling for business cycle effects is estimated for each of five Canadian regions. Alternative specifications are employed in order to help distinguish between the effects of internal scale economies and agglomeration economies. The results support the hypothesis that agglomeration economies make a significant contribution to growth in labour productivity. Although rapid growth in the capital — labour ratio contributed significantly to growth in labour productivity in the Atlantic region, it was not sufficient to erase regional differences.