Conditional Labor Productivity Convergence in Canada

Abstract

The purpose of this paper is to investigate the determinants of labor productivity growth at the provincial level in Canada over the 1966-92 period. The model considers differences in the initial level of labor productivity, human capital characteristics, private and public investments, and industry mix as explanatory variables in determining productivity growth. The main results are the following. The rate of human capital accumulation (its effect becomes more significant once the effects of inter-provincial migration are accounted for) and public investment (excluding government investment on non-residential construction) are positively correlated with productivity growth while the initial level of productivity and government consumption are negatively correlated with productivity growth. On the other hand, private investment is not significantly correlated with provincial productivity growth reflecting the high degree of private capital mobility between regions in Canada. Relatively slow convergence we observe in Canada appears, in part, to be due to differences in the industry mix across provinces.