Reexamining the regional income convergence in Canada

Abstract

Sigma, beta, stochastic (weak) and club convergence in Canadian provinces have been examined for a variety of periods. Our empirical results show that sigma convergence exists since the standard deviation of real personal disposable income declined from 1926 to 2020. Moreover, beta convergence occurs for the whole period 1926-2020 and the subperiod 1950-2020 but not for the more recent datasets, i.e., 1981-2020 and 1996-2020. In contrast, the unit root tests show a complete lack of stochastic convergence while the cointegration tests indicate stochastic convergence for the period 1949-2020. Strong stochastic cointegration doesn’t happen too. However, the data doesn’t support convergence since beta and stochastic convergence (weak) don’t occur simultaneously, apart from the period 1949/50-2020 where convergence indeed happens. Furthermore, robustness analysis, shows that it is important to be a distinction between measures of real personal/household income since in some cases, the different measures can lead to different conclusions, especially in terms of disposable and non-disposable income. Finally, the definition of convergence, namely strong or weak can really change our results. However, this paper doesn’t support in any case one unique steady state among provinces after 1981.