Convergence in the Canadian Provinces: Evidence using Unemployment Rates

Quarterly time series data from Canada and the Canadian provinces for the period 1976:1-2005:3 are examined to determine if the unemployment rates in the Canadian provinces are converging to the national rate of unemployment. Firstly, we check for existence of stochastic convergence using recent unit root statistics, see Perron and Rodríguez (2003) and Rodríguez (2007). Secondly, we verify for existence of B convergence using recently proposed methods by Vogel-sang (1998), Perron and Yabu (2009a, 2009b), and Bai and Perron (1998, 2003). Results from different unit root tests, without and with structural breaks, confirm that stochastic convergence exists in all provinces except British Columbia. The other results show strong evidence that deterministic convergence exists and the unemployment rates of the Canadian provinces are converging to the un- employment rate of Canada. This conclusion is stronger when multiple breaks are allowed in the trend function using the approach of Bai and Perron (1998, 2003).

Keywords
B- convergence, Stochastic convergence, Structural breaks unemployment, unit roots

JEL Classification

C22, O40, R00