In a previous post, I was sceptical of a claim made by the Globe’s Murray Campbell to the effect that the policy of redistributing from ‘have’ to ‘have-not’ provinces hasn’t worked. I’ve spent some time looking at the data, and one mystery has been cleared up: Ontario’s nominal GDP per capita was indeed 103% of the Canadian average in 2004. If you use StatsCan’s real (chained 1997 constant dollar) GDP numbers, that ratio is 107%.

It’s hard to avoid the conclusion that the ‘have-not’ provinces are catching up to Ontario.

Here are the average annual growth rates of population and real GDP over 1981-2004:

If you just look at the GDP growth numbers, it seems clear that the Canadian average is being driven by growth in the ‘have’ provinces, especially Ontario and Alberta, while the ‘have-not’ regions are bringing down the average. (I’ll get back to British Columbia in a moment). But when you look at per capita GDP, the situation is reversed: the have-not regions have had the highest growth rates.

This trend goes back to at least 1961 (which seems to be as far back as StatsCan is willing to go).

A crucial factor is of course population growth. Or more precisely, labour mobility: since 1972, total net migration from have-not to have provinces is 950,000. And the people who stayed behind are doing their part as well. As I noted before, a significant part of Canada’s economic growth can be attributed to increases in the employment rate: it’s increased an average of 0.24 % since 1981. In the have-not provinces, it rose at the rate of 0.38%, but only 0.12% in the have provinces. Of course, the have provinces still have higher employment rates, and their working-age populations have grown much faster, but the point is that employment rates in the have-not provinces are catching up as well.

This is not to say that the federal govt’s equalization programme is in fact doing what it’s supposed to do; it may well be that this convergence is occurring despite equalization, and that it would happen faster without it. But such a conclusion would have to be a result of a much more sophisticated analysis – that is, one that is able to explain what would have happened in the absence of equalization.

About British Columbia. I don’t have first-hand knowledge about what’s going on there, but the data suggest that it’s in a state of relative decline. Moreover, this decline seems to have gone on as long as there are available data, so it’s difficult to see how this deterioration could be laid at the door of any of the three parties that have been in power over this period.