The Canada--United States productivity puzzle: regional evidence of the pulp and paper industry, 1971-2005

We analyze the total factor productivity (TFP) of the pulp and paper industry in three Canadian provinces (British Columbia, Ontario, and Quebec) and in three United States (US) states that are contiguously located south of the border (Washington, Illinois, and Maine) over the period of 1971 to 2005. We find that the industry in the three Canadian provinces had much higher TFP growth rates in the era following the Free-Trade Agreement (FTA) signed in 1988. In terms of productivity level, this relative TFP surge allowed the industry in Ontario and British Columbia to move ahead of Illinois and Washington, respectively; however, Quebec trailed further Maine, which is the overall leader in the sample. Our results in this particular case reveal that the Canadian pulp and paper industry did not contribute to the overall Canada-US productivity gap. Key words: total factor productivity, income convergence, pulp and paper industry, Free-Trade Agreement (FTA), productivity puzzle. Nous avons analyse la productivity totale des facteurs (PTF) de l'industrie des pates et papiers dans trois provinces canadiennes (Colombie-Britannique, Ontario et Quebec) et trois etats americains situes immediatement au sud de la frontiere (Washington, Illinois et Maine) pour la periode de 1971 a 2005. Nous avons remarque que l'industrie dans les trois provinces canadiennes avait un taux de croissance de la PTF bien plus elevee pour la periode suivant l'Accord de libre -echange signe en 1988. En ce concerne le niveau de productivite, l'augmentation relative de la PTF a permis a l'industrie de l'Ontario et de la Colombie-Britannique de devancer respectivement l'lllinois et Washington; cependant le Quebec accuse toujours un certain retard sur le Maine qui est le chef de file dans notre echantillon. Dans ce cas particulier, nos resultats revelent que l'industrie canadienne des pates et papiers ne contribue pas a l'ecart global de productivite entre le Canada et les Etats -Unis. [Traduit par la Redaction] Mots-cles : productivite totale des facteurs, convergence des revenus, industrie des pates et papier, Accord de libre-echange, casse-tete de la productivite.
1. Introduction 'Canada has a serious productivity growth problem. The statistical evidence is unambiguous and of long standing.' (1) Real gross domestic product (GDP) per capita increased at a slightly [...]