Regional Economics

 Regional economics is a subject concerned with understanding and explaining the geographic configuration of the economy, particularly regarding industrial location, regional development, urbanization, migration, land use, etc. The first major works devoted to theories of location for economic activity appeared, chiefly in Germany, at the turn of the century. As a field of study, regional economics has flourished in most industrialized nations, including Canada; it has much in common with economic geography and the new field of regional science in its emphasis upon both economic principles and the role of spatial relationships. Courses on it are offered by most Canadian universities.

The Distribution of Economic Activity in Canada

Economic activity in Canada is highly localized. Ontario has, since 1910, regularly accounted for about 40% of the national total of income and production. Ontario's gross domestic product (GDP) in 1994 was $302 billion, roughly comparable to Belgium or Sweden. Ontario accounts for over 50% of Canadian manufacturing activity, largely concentrated in southern Ontario between Windsor and Oshawa. Toronto, Ontario's capital, is Canada's dominant business centre. Corporations headquartered there controlled over 50% of Canadian production and roughly 65% of the assets of Canada's major financial institutions.

Québec's economy, with a GDP of $102.8 billion (1986), has since 1910 accounted for about 23% of Canada's income and production, but its share has declined slightly in recent years. The Montréal urban region accounts for about 45% of Québec's income and production, making it Canada's second major business centre. Corporations headquartered there controlled about 25% of Canada's production and some 20% of the assets of Canada's major financial institutions. The 1170 km corridor from Windsor, Ont, to Québec City has sometimes been referred to as the economic heartland of Canada, representing over 55% of Canada's population, generating over 60% of its income and production, and accounting for over 70% of its manufacturing employment.

The 4 Western provinces of Manitoba, Saskatchewan, Alberta and BC, with a combined GDP of about $230 billion, accounted for roughly 31% of Canada's GDP. The last decades have witnessed major shifts within the western economy. BC's share of national income has been steadily increasing since 1910. Alberta's energy-based economy grew dramatically during the 1970s, but has stabilized since. With Vancouver beginning to challenge Montreal as Canada's second metropolis, that city and, to a lesser extent, Calgary, have become important corporate and financial centres. Since the Great Depression of the 1930s, Manitoba's and Saskatchewan's shares of national income have decreased steadily; Manitoba's gradually, Saskatchewan's erratically, reflecting the volatility of its wheat-based economy. Winnipeg, the traditional manufacturing and service centre of the Prairies, is being increasingly challenged by Edmonton and Calgary.

The 4 Atlantic provinces, Newfoundland, Nova Scotia, New Brunswick and Prince Edward Island generated a combined GDP of $45.5 billion in 1994, accounting for about 6% of the national total. The economies of the 3 Maritime provinces, NS, NB and PEI, have declined steadily over the last century. They represented 5% of the national GDP in 1994, compared to 16% in 1890. The decline is often blamed on the NATIONAL POLICY following Confederation and technological changes in shipbuilding. However, the Maritime economies, as well as that of Newfoundland, have shown signs of improvement since the 1980s, suggesting that the long period of secular decline has perhaps come to an end.

Regional Income Disparities

The continuing disparity between Atlantic Canada and the more affluent parts of the nation, particularly Ontario and BC, remains Canada's principal regional economic problem. During the 1990s, personal income per inhabitant in Ontario and BC was on average about a third higher than in Newfoundland, NB and PEI and about 25% higher than in NS. Per capita income in Québec has also remained systematically below the national average. , although at levels far less disturbing than for Atlantic Canada. In recent years, per capita income in Quebec has tended to hover just below the national average. Despite such differences, the general trend over the last 4 decades in Canada has been a lessening in regional income disparities. In 1956 incomes received by New Brunswickers were 65.9% of the national average compared to 81% in 1994.

The Québec economy has been subject to conflicting forces. The dramatic decline in birthrates (since the 1960s), the growth of WOMEN IN THE LABOUR FORCE, rising educational standards (see HIGHER EDUCATION), and the emergence of a new Francophone business class have all worked to raise incomes. On the other hand, the francization of Québec society as well as the continuing threat of separation have had an economic cost, reflected in the out-migration of much of the old Anglo BUSINESS ELITE and the decline of Montréal as a business core.

Income disparities between the Prairie provinces and the rest of Canada are reflected in alternate patterns of divergence and convergence and severe fluctuations in per capita income, the result of dependence upon primary production (wheat, oil, natural gas, potash) and levels of demand, which are often determined by uncontrollable natural and international factors. Saskatchewan's relative per capita income traditionally fluctuated erratically, 59% of the national average in 1941, 107% in 1951, 71% in 1961, but fluctuations have lessened since. In Manitoba, with a stronger manufacturing base, per capita income, since 1956, has tended to remain below the national average. Alberta during a brief period in the late 1970s and early 1980s registered the highest per capita incomes in Canada, but has since slipped back to third place behind Ontario and BC, although still above the national average.

Following the 1973 international oil crisis, business income from oil production increased sharply. Most of this "windfall" income was generated in Alberta. The income generated in one region may flow to another in the form of federal government transfer payments, eg, EQUALIZATION PAYMENTS, unemployment benefits, or in interest, dividends and profits accruing to investors outside the region (see INTERGOVERNMENTAL FINANCE). During the mid-1970s the federal government and energy-producing provinces (especially Alberta) were often in conflict over the right to tax and redistribute energy profits. The surge of revenues from Alberta upset the traditional regional balance in which Ontario was the senior "have" province and chief contributor to federal transfer schemes. Alberta's boom was shortlived as oil prices fell again during the 1980s. The economic history of the West amply demonstrated the fragility of resource-based prosperity.

Causes of Regional Income Disparity

Differences in income per person between regions may exist at any time because of variations in employment, wage rates, investment income or income from government transfer schemes. In Canada, where about 70% of personal income is derived from wages and from other labour income, employment and wage rates are by far the most important factors.

The uneven distribution of jobs (compared to population) in Canada is measured by variations in (a) the proportion of the local population of working age (15-64 years); (b) the percentage of that population in the labour force; (c) the unemployment rate. The proportion of the population of working age has traditionally been lower in Atlantic Canada than elsewhere, partly as a result of EMIGRATION; labour-force participation rates have also remained low while unemployment rates have remained high. The jobs-to-population ratio was 33.5 in Newfoundland compared to 47.3 in Ontario (1994 figures), which accounts for a major portion of the disparity in per capita income.

Regional differences in wage rates may result from differences in labour productivity and in industrial structure. The traditionally high level of per capita income in BC largely reflects high wages. However, because of influences such as unionization, labour mobility, social legislation and the weight of public-service employment, a national trend towards wage equalization exists. Wage rates in Québec and Ontario, for instance, were roughly equivalent during the 1990s.

Regional disparities in employment and wages can be partly attributed to comparative advantages of location. The first areas to develop, because of natural or historical advantages, will often continue growing as markets, institutions and infrastructures are created. The St Lawrence Valley was first developed because of its unique transportation advantage and agricultural potential. By building canals, roads and other infrastructures, settlers enhanced this initial natural advantage. Before Confederation the combined populations of Québec and Ontario were already considerably larger than that of the Maritimes.

Canada's internal market is small by world standards; one plant or office often serves the entire country. The centre of that market is situated in southern Ontario and southwestern Québec. Industries in the Maritimes and the Prairie provinces are poorly located for serving the Canadian market. Modern industry and offices often require services, skills and infrastructures only found in large cities. Atlantic Canada possesses no major urban metropolis. Halifax is a small city by world standards. In the Prairies, the lack of waterways confounds the difficulty of reaching major markets and constitutes a special handicap to industrial development.

The rise of the US as Canada's chief trading partner and source of foreign investment since WWII has benefited some regions more than others. Southern Ontario benefits not only from its access to the Great Lakes but also by its proximity to the major industrial zones of the American Midwest, of which it has in many ways become an extension - the development of an automobile industry in Windsor, across the river from Detroit, is an obvious example. American investment is heavily concentrated in Ontario, and Toronto is the centre for most US-controlled head offices. The integration of Canada into the North American economy has contributed to the isolation of Atlantic Canada, whose economy traditionally had strong links with the UK. In more recent years the growth of the PACIFIC RIM economies (Japan, China, California) has benefited BC and, to some extent, Alberta.

The human element is the most elusive in regional development. Migration, for example, has a decisive impact on the quality of human resources in a region. Low-income regions in Canada are often locked into a cycle of decline because the most dynamic and educated people of working age emigrate.

The resources of BC and Alberta help account for their growth. BC's high wages and productivity are the result partially of its forest resources, but also of its advantageous location and skilled labour force and Vancouver's role as an emerging metropolis. The Atlantic provinces are handicapped not only by the lack of competitive, low-cost, natural resources, but by disadvantages of location and a history of emigration. Natural-resource exploitation alone, however, rarely constitutes a sufficient basis for sustained economic growth. In Canada, as in other developed nations, it is today the location of MANUFACTURING and of SERVICE INDUSTRIES which largely determines the emergence and persistence of regional income disparities.

Regional Economic Policies

Since Confederation Canadian economic policy has been influenced by regional considerations. National policies have important repercussions at the regional level, intentional and unintentional, often creating tensions between the provinces and the federal government and among provinces. In recent years regional policies specifically directed at low-income areas have been implemented.

Historically, Canada's protective tariff structure, a legacy of John A. MACDONALD's National Policy, designed to encourage Canadian industrialization, primarily benefited the manufacturing areas of Québec and Ontario, providing them with a captive market. Canada's tariff policies were historically a source of grievance in Atlantic Canada and the West, where consumers felt they were subsidizing the protected industries of central Canada, stifling the development of their own regions. However, with the signing of a free trade agreement in 1989 with the US (with Mexico joining in 1993), combined with the tariff-reducing effects of GATT negotiations during the 1980s and 1990s, Canada's tariff structure has ceased to be a major regional issue (see FREE TRADE).

The Maritime Freight Act (1927) provided for subsidies to reduce freight rates for rail shipments moving from points east of Lévis, Qué, to the rest of Canada. The subsidy was subsequently raised and extended to commercial trucking. Freight rates on grain shipments out of the Prairies were kept artificially low from the turn of the century by the CROW'S NEST PASS AGREEMENT . Prairie wheat farmers are assisted in the transport and marketing of their output by multiple subsidy schemes and by the Winnipeg-based CANADIAN WHEAT BOARD. However, since the 1980s the federal government has been phasing out most transport subsidies.

The regional impacts of federal ENERGY POLICY have often been a source of controversy. Before the 1972-74 oil crisis, energy policy favoured the oil-producing provinces because of the so-called Borden Line (1961), which divided Canada into 2 oil-marketing zones at the Ontario/Québec border. West of the line no imported oil could be refined or sold; foreign oil and its by-products were limited to the market east of it. The then more expensive western oil was ensured a captive market, including Ontario, but the expansion of the Montréal-based (and more easterly based) oil-refining and petrochemical industry was hampered by artificial limitation of its market at the Québec and Ontario borders. From 1973 until the mid-1980s, the national energy policy tended to favour oil-consuming provinces by keeping internal oil prices below international levels and by redistributing a significant portion of western oil royalties. Late in 1984, the Mulroney government indicated it intended to allow domestic oil prices to match world prices. Domestic oil prices have since joined world levels.

Canada's comparatively generous system of TRANSFER PAYMENT programs, comprising transfers both to other governments and to individuals (unemployment benefits, family allowances, pensions), typically accounts for about 50% of the federal budget. Income differences would be much greater if transfers to individuals were excluded from personal income. Newfoundland's income per person in 1994, for example, would fall from 78.9% to 64.2% of the national average. Without transfer payments, the level of regional income disparity would be about the same as it was in 1971, implying that the improvement in Atlantic Canada's income position is as much a result of money transfers than of real improvements in the region's economy.

Specific federal regional development programs (RDPs) targeted at low-income regions have existed since the 1960s, initially aimed at depressed rural regions but broadened since. The Department of Regional Economic Expansion (DREE) was established in 1969 and integrated in 1982 into the Department of Regional Industrial Expansion (DRIE). DRIE was dismantled in 1988 and replaced by 4 regionally based agencies: Western Economic Diversification Canada (WEDC); Atlantic Canada Opportunities Agency (ACOA); Federal Office of Regional Development for Quebec (FORD-Q); Northern Ontario Program (FEDNOR). The agencies are active in promoting industry via varying financial-support measures for local firms and entrepreneurs, as well as inheriting many of the programs of the old federal departments.

RDPs encompass a broad range of policies, including grants, special depreciation allowances and loans to encourage the location of firms in designated areas. Federal departments and agencies have also entered into general development agreements with the provinces, which can include infrastructure programs, mineral exploration, industrial restructuring incentives, rural development schemes, etc. The Cape Breton Development Corporation is an example of the type of undertaking in which DREE participated. The impact of RDPs has been most clearly felt in smaller regions, especially in the more depressed zones of Atlantic Canada. However, the general consensus among economists is that area-directed RDPs, such as those practised by DREE and DRIE during the 1970s and 1980s, have not profoundly altered the pattern of regional development in Canada.

Regional problems and policies similar to those on the national level may be found within almost every province. Within Ontario, disparities in per capita income and employment levels between the industrialized south and the less developed north are often as substantial as they are between provinces. In Québec, per capita income and employment levels in the Gaspé region have systematically remained below those of the greater Montréal region. In NS the Halifax and Cape Breton regions are, respectively, fairly prosperous and economically depressed. In most provinces, but perhaps most significantly in the West, a visible divide exists between richer urbanized southern regions and sparsely populated northern areas, often chiefly inhabited by NATIVE Canadians. The questions of local economic development for Native communities has emerged as a major issue in many provinces (see NATIVE PEOPLE, ECONOMIC CONDITIONS). Most provinces have developed their own regional policies and objectives, often independently of the federal government.