International Trade, Interprovincial Trade, and Canadian Provincial Growth

This paper provides an empirical analysis of the comparative evolution of interprovincial and international trade and their effects on regional growth for the Canadian provinces since 1981. Two sets of results emerge from the analysis. First, it appears that the rapid expansion of international trade following the Canada-United States Free Trade Agreement with a certain lag did not produce a decrease in interprovincial trade. To the contrary, we found a positive relation between the two trade channels, especially since 1991. Second, using a conditional convergence econometric framework, we found that increased international trade openness has a positive and significant long-run effect on regional standards of living, productivity, and employment. Increased interprovincial trade has a positive effect on GDP per capita and employment; however, the effect appears to be close to zero on labour productivity.