Demographic Change and Regional Convergence in Canada

I have a new working paper (a short article in fact) out there, co-written with Vadim Kufenko and Klaus Prettner. It measures economic convergence across provinces in Canada since 1870 with a “twist”. We argue that the manner in which convergence is measured fails to capture for the varying demographic settings of different areas – most notably household size. We argue that it is much more relevant to adjust personal income using equivalence scale that allow us to control for household size. The results we achieve tell a different story of convergence. First, the level of differences was overestimated prior to 1990 and underestimated thereafter. Secondly, it shows that since 1990, there has been no convergence across Canadian province nor was there any convergence prior to the 1920s. The only era during which provinces grew closer together was between the 1920s and the 1980s.

The paper is available here at the Violet Working Papers Series of the University of Hohenheim (the affiliation of both my co-authors).  The abstract is below:

We examine the role of demographic change for regional convergence in living standards in Canada. Due to economies of scale within a family, decreasing household size has an impact on convergence in living standards, while per capita income convergence remains unaffected. We find that, by relying on per capita income, the dispersion of living standards between Canadian regions is overestimated prior to the 1990s and underestimated thereafter. As a consequence, relying on income per capita results in overestimating the speed of convergence in living standards.

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