Optimal Allocation of Economic Activities Over Space: The Canadian Case

Abstract

<p>Canadian regions have not shared equally in the general prosperity of the Canadian economy. There are now a plethora of regional economic policies dealing with regional disparities and unbalanced growth. Two contending principles, however, dominate the choice open to the policy maker -- moving people to jobs, or moving jobs to people -- and there is not yet a satisfactory resolution as to which policy is more effective. In this study an attempt is made to compare the effects of these two policies on the aggregate efficiency of the economy. The question of how to increase the income of the slow growing regions in such a way that it does not interfere with overall economic efficiency is addressed. A linear programming approach is used, where the objective is to maximize the total gross national product of the ten Canadian provinces. To capture all the side effects and to take into account all the bottlenecks that may hamper the growth process, the analysis is conducted within a general equilibrium framework. The trade-off between aggregate efficiency and inter-regionalequity is analyzed within the same framework. The consequences, in terms of efficiency, of equalizing per capita income across provinces are quantified. The major conclusions drawn from this study are that the mobility of factors of production across regions improves considerably the aggregate efficiency of the Canadian economy. In addition, the cross-regional mobility of factors allows interregional equity to be achieved at a relatively low efficiency cost.</p>