Ansari_1992_Growh effects of recent structural changes in the Canadian economy.pdf

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Applied Economics, 1992, 24, 1233-1240

Growth effects ofrecentstructural changesin the Canadian econom y: someempirical evidenceM. L ANSARIFacultyof Arts,Athabasca University, Box 10,000, Athabasca, Alberta,Canada TOG 2R0

A structural change marked by deindustrialization/servicization in most westerneconomies and the nature and extent of its influence on economic grow th continues tobe a major topic of interest. The paper rests heavily upon the presumption of thedeindustrialization/servicization hypothesis and focuses on the grow th implications ofsuch structural changes. Using Canadian data, the paper first explores a causalrelationship between goods and service sectors by running Granger-causality tests. Itthen tests an econometric model to quantify the growth effects of changes in bothshares and growth rates oftheindustrial and the manufacturing sectors. The findings,based on empirical testing of the model over the period 1961-89, suggest that recentstructural changes in Canada have had significant negative growth implications.

I . I N T R O D U C T I O NStructural changes in most western industrialized economiesin recent years have resulted in a relative decline of the goodssector.^ In expanding economies, it has meant a rapidlygrowing service sector, commonly referred to as 'serviciz-ation'. But perhaps m ore importantly, this has been accom-panied by a relative decline of the manufacturing sector, or'deindustrialization'.^ What is noteworthy is that in recentyears these economies have also witnessed a slowdown inaggregate economic growth. As Table1 suggests, economicgrowth in real terms for the21industrial countries averagedonly 2.86% over the period 1973-88 compared to 4.59%over the period 1961-72. Even if one omits the five worst

years of performance following the two oil shocks, econgrowth still averaged around 3.90% over the p1973-88. Similarly, Canadian economic growth aveonly 3.68% over the period 1973-88 compared to 5over 1961-72. Omitting the three worst years of perfance brings this number up to 4.47%.Since the focus is on the growth implications, important to highlight the nature and extent of strucchanges in the Canadian economy in recent years. Ading to the latest available national accounts data, oshare of the goods sector in 1981 prices declined bypercentage points, from 43.73% in the first quarter ofto 38.47% in the fourth quarter of 1989. The share oservice sector, on the other hand, has risen by a si

'Following the UN International Standard Industrial Classification (ISIC), the goods sector includes agriculture, fishing and trapforestry, mining , manufacturing, constructio n an d utilities. The service sector includes finance, real estate ^and insurance, transp ortation and comm unication, community business and personal services, and pub lic admin istration and defence. The goods aservice sectors together exhaust the economy.^Despite the controversy over the n ature and extent of deindustrialization/servicization in western indu strialized econom ies, there apto be a broad consensus on the validity ofthedeindustrialization hypothesis in terms of employm ent, at least in a relative sense. Altthe evidence in terms of outp ut is somewhat weak an d scanty, there h as been some decline in the relative position of the industrial since the early 1970s. For an excellent discussion of this and other related issues, see Blackby (1979), Petit (1986), Rowthorn and (1987), Singh (1977) and Forsyth and Kay (1980).0003-6846 1992 Chapman Hail


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34 M. I.AnTable1.Growth ratesandsectoral sharesfor Canadaand theindustrialcountries, 1961 88

Industrial countries1961-72 1973-88

Real growth rateIndustry share*Manufacturing shareShare of services

Canada1961-725.2841.0221.10

55.41

1973-883.6836.6419.43

59.79

4.59 2.86

'Figures represent annual growth rates based on GDP at constant prices.''Industry includes mining, manufacturing, construction and utilities.Source: Da ta on growth rates are from International Financial Statistics,IMF Yearbook,1989.Data on sectoral shares are from Cansim m atrix4665.Statscan,Cat.no.15-001isthe original source.

amount.-* Over the same period, the shareofindu stry fellfrom 40.65% to 35.27%andthat ofmanufacturing from19.37%to18.93%. As Table 1 shows, the average shareofindu stry fell from 4 1.02 % in the first subp eriod to 36.64 % inthe second subperiod. Likewise, the manufacturing share fellfrom 21.10%to19.43% over the same two periods.The q uestion that is being asked is:H as th e relative shift ofresources from manufacturing tothe service sector c ontri-butedto the slowdown in economic growth? There are twost randsofthoug ht on this issue. First , the more tradit ionalview led by Kald or and most of the development econom istsis tha t industr ialization pro mo tes growth and, therefore, anya m o u n t ofdeindustr ialization hasto begrowth-retarding.The second view led by Grub el, Gershu ny and others is thatservicization isgrow th-augm enting and, therefore, recentdeindustr ialization which has been accom panied by serviciz-ation may not begrowth -retarding. While thefirst viewemphasizes l inkages and thedy na m ic efficiencies of themanufacturing sector, the second view emphasizes linkagesand thedy na mi c efficiencies ofthe produ cer services - amajor component of the service sector. Both views are well-documented butmost of the arg um ents , especially th oseconcerning thelatter view,areeither conjectural or arebasedoninsufficient evidence. Discussing the gro wth -aug -menting roleofthe producer services, Grub el and Walker(1989b,p. 259) aptly put it as: 'In theframework of theservice sector project, it wasnotpossible to quantifytheeffects which increased service sector inputs and innovationhavehad onthe goods prod ucing sector inCanada .Thedifficult task of doing so should beatop-ran king i tem on anagendaforfurther research '.To a lesser degree, the samepoint can be made with regard to the view that deindustrial-ization is growth-retarding. There, too, not enough empiri-cal work hasbeen don e to measure the effects of de-industr ializationoneconomic growth.

The intent hereis no tto get involvedinthe d ebateprovide additional convincing argumentstosettle th e ione way or another. Rather, there is a need for looking atissue from anempirical point ofview. The pres ent patherefore, is an at tem pt to initiate such a process. To be mspecific, the pape r first r uns ca usality tests to establish caurelationship between goods and the service sectors.Ittests an econometric model, using both the GDP shares growth rates of the industr ial and the manufacturing sectin ordertomeasure their contribution stogrowth. Finfor determining their long-run impacts, the model is estited using the Almon method of distributed lag. All testsbased on Can adian data over the period 1961-89.empirical results seemtoreject the null hyp othesis t hat recent structural changes have had no adverse groeffects.

IL EFFECTS OF STRUCTURAL CHANGE:A SYNOPSIS OF VIEWSDeindustrialization growth-retardingIndustr ializationis generally consideredasthe coreofdevelopment strategy (Singer, 1950; Perroux, 1971;Prebi1950; Hi rsch ma n, 1958; M yrd al, 1957; Lewis, 1977). Evenadvanced western economies, industr ialization has lbeen regarded as the 'engine of growth' (Kaldor, 1966, 19Cornwall , 1977; Rowthorn andWe lls, 1987; Singh , 19Th irl wall, 1982).In the contextofeconom ic developmthe demand for services is generally considered asaderidemand. And, therefore, it is the industrial sector,aparticularly the manufacturing sector, whichisbelievedgenerate the linkages, economies of scale, and the dyna

'T he difficulty with the concept and measurem ent of service sector outp ut has been widely acknow ledged in the literature. However, Fu(1968)has shown tha t overtheperiod 1929-^5,the average rate of growth of productivity in US industries was2.2%compared to only 1in services. The difference, in his view, is too large to be explained by the usual problem of measurement.


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Growth effects of structural changes in the Canadian economy 12efficiencies. Furthermore, it is believed that these benefitsultimately permeate the whole economy, and thus makeindustrialization growth-augmenting. One finds two majorelements in this Kaldorian logic. First, manufacturing dis-plays a stronger link between forces of demand and pro-ductivity growth than do other sectors. Second, an improve-ment in labour productivity in manufacturing is followed byimprovements in output design and marketing strategy,leading to further increases in demand. There is, therefore, acircular causation in which improvements in demand causeproductivity to rise, which in turn increases competitiveness,which in turn induces demand. As a corollary, deindustrial-ization would simply reverse the chain of events.*

The benefits of dynamic efficiencies are eventually felt inthe service sector as well. As the manufacturing sectorexpands, the demand for services by firms and householdsincreases. But this is not all that happens. Large productivitygains in the manufacturing sector cause either wages to rise,profits to rise, prices to fall, or any combination of the above.To maintain the historical relationship, the same musthappen in the service sector. If, for example, wages in theservice sector rise, then the productivity must also rise inorder to control the cost. However, even iftheentire increasein cost is not countered by productivity gains, and some risein prices are unavoidable, the service sector can still expandon the strength of its high income elasticity.

Servicization growth-augmentingHowever, unliketheKaldo rian view,the Grube l -Gershunyview considers a rapidly growing service sector as havingfavourable growth effects (Gershunyand Miles, 1983;Gru-bel and Walker, 1989a,b). This view does not reject thepremise that the demand for service sector output is aderived demand. However, Grubeland Walker have pion-*To quote Singh (1977, p.123)

.. .thereis a great deal more solidly based relevant evidence concerningthedynamic roleofthe manufacturing sectorineconomgrowth.Forinstance, CrippsandTarling (1973),intheir analysisofgrowth processinadvanced industrial countries during 1950-have confirmed Kaldo r's hypothesis that thereis a closerelationship between the rate of growth of a country's G D P and the growth ofmanufacturing sector. This relationshipismuch closer than wouldbeexpected (since manufacturingisquite a large component of GDon purely statistical grounds;it is also closer than that observed betweenthegrowthofG D Pand of other sectorsofthe economTherefore,ashrinkagein its manufacturing sectorisclearlyacauseforlegitimate concern.Similarly, Th irlwall (1982, p. 27) saysManufacturing growthhas often been describedas'engineofgrowth'and with good reason. Thereis a strong association acrcountries between the importance of manufacturing in the total economy and the level of per capita income, and between the growth manufacturing outputand thegrowthofgross domestic prod uct.'However,theKaldorian view which draws heavily fromtheVerdoon'sLaw has not been immune from criticisms (see Kaldor, 19Rowthorn, 1975a,bfor aninteresting discourseon thesubject).^Evidence suggests that there have been significant productivity gains in the service sector in recent years. Barras(1986),for instance, testhe vintage modelofcapitalandfound that productivityinprivate service sectorin the UKhas increased significantly primarily duecapital deepeningbutalso dueto embodied technical progress.^There are two o ther studies which deserve mention in this regard. U sing a small macrosimulation model of the Can adian economy, Curand Murthy (1990) found that policies aimedatencouraging demand and productivity in commercial services produced larger impactaggregate employment and productivity gains than those aimedatthe goods sector.Inanother study H arris and Cox (1990) simulatedmodel using an input-output approachand found thatashiftindemand conditions in the exports sector would haveanegative resoumovement effectand apositive spending effecton theservice sector.Onbalance,thelatter seemstodominatetheformer.

eereda statistical method to divide theservice sector ithree components, namely, consumer, government, aproducer services. The cons um er services are mainlydmanded by the households for final consumption. Tgovernment servicesaresuppliedby thegovernment freechargeor at a minimal charge. These are also demandlargelyforconsum ption with some exceptions.Butproduservicesare ofinput natu re entailing p rovisionofinnovatservicesto other firmsin theeconomy. G rubeland Walhave shown tha t GD P shareofproducer servicesis notolarger than thatofthe first two ,but it has also been growrapidly, accountingfor an increasingly larger prop ortionnational income.Itis often said th at b ecau se of its low rateproductivity growth, the service sector cannot act as engineofgrowth.* They maintain that evenif oneaccethat this sector suffers from a low rate of productivgrowth, producer servicesareins trumenta l in raisingpductivity in the rest of econ om y, becau se these serviconta ina high levelofhum an knowledgeandcapital.Atherefore, theiruse as inputs imparts impo rtant cost-recing effects to the goods sector. The resulting largepductivity gainsin thegoods sector,in turn, contributethigh rateofeconomic grow th. M oreover, these largepductivity gains enhance comparative advantage whichturn helps achieve higher growth rate thr oug h b etter expperformance.^I I I . P R O D U C E R S E R V I C E S IN C A N A D A :T R E N D S AND R E L A T I O N S H I P SF o r the purpose of this section and the remainder of tpaper, the service sector has been decompo sed, usingttechniques pioneered by Grubel and Walker (1989a) ingovernment , consumer and producer services.The resuare similartothoseofGrubeland Walker. First, consum


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36 M. / . A70-1

6 0 -

co

2 0 -

61626 J6


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Growth effects of structural changes in the Canadian economy 1service sector as indicated by statistically significant F-values. Also, these results hold more strongly when producerservices were used than when total services were used,implying that perhaps the linkages originating in producerservices are not a s stron g as they are b elieved to be. It is alsoconsistent with the idea of producer services being of inputna ture .

I V . E C O N O M E T R I C M O D E L O F S O U R C E SA N D D E T E R M I N A N T S O F G R O W T H

Theoretical frameworkThe basic approach in deriving the model is a combinationof Denison's (1962) sources of growth and Kaldor's (1966)determinants of growth. There is , therefore, nothing novelabo ut the theoretical framework used here, as similarmod els have been used extensively in many em pirical studies(Balassa, 1978; Tyler, 1981; Kav oussi, 1984; Feder, 1982;Ram, 1985).We begin with a Cobb-Douglas production function

Y=e''K''L (3)Taking a natural log of both sides, we get.

Differentiating Equation 4 with respect to timed l n y , d K 1 ^ d Z . 1

4

(5)

The three terms in Equation 5 represent growth rates ofincome, capital and labour. Since the equation is in doub le-log form, the coefficients a an d j? are elasticities of ou tp utwith respect to capital and labour. It implies constantreturns to scale if they add up to one, increasing returns ifgreater than one, and decreasing returns to scale ifless thanone. The constant h is expected to capture possible pro-ductivity effects of Hicks-neutral technological change. Forestimation purposes, we add an error term and rewriteEquation 5 as follows:

Equation 6 is estimated in three stages. First, we estimateit as it is. Second, we estimate it by adding an argument forexports.* And third, in order to capture the growth effects ofstructural change, we estimate it by including an argumentfor structural change, namely, share and rate of growth ofthe manufacturing and industrial sectors. It should bepointed out here that this model, like most econometricmodels, is a partial one in the sense that it ignores manyother factors such as monetary and fiscal policy, exogenousshock s like the energy crisis, and oth er non -econ om ic factors

which infiuence economic growth. In the extreme, we not even have the knowledge about all other factors whmay influence economic growth, much less be ableincorporate them all. In this sense, we always haveincomplete model.Data and variablesThe following is a brief description of the variables andsources of data used here.

QT = annualized quarterly g rowth rates of seasonadjusted G D P at factor cost in 1981 prices. Csim matrix 4665. Also available in Statscan.no . 15-001.

KT = annualized quarterly growth rates of gross ficapital formation, seasonally adjusted in 1prices. OECD -Quarterly National Accounts.LT = ann ualized quarterly growth rates of labou r fobtained from seasonally adjusted monthly

bour force (both sexes 15 years and ovStatscan. Cat. no. 71-201.XT = annualized quarterly grow th rates of seasonadjusted total domestic exports in 1971 priOECD-Quarterly National Accounts.IT = annualized quarterly growth rates of seasonadjusted in dustr ial sector GD P in 1981 priCansim matrix 4665.M T = annualized quarterly grow th rates of seasonadjusted manu facturing sector GD P in 1981 ces. Cansim matrix 4665.PI = percentage share of industrial sector in season

adjusted G D P in 1981 prices.Cansim matrix 4PM = P ercenta ge share of man ufactu ring sector in sonally adjusted G D P in 1981 prices. Camatrix 4665.Empirical resultsIn all, six different versions of Equation 6 were estimaThe basic estimation procedures employed were thoseO L S . However, in each case the generalized least squ(GLS) procedure was used in order to correct for presence of first-order serial correlation in the error terSeveral specifications were tried but a double-log fseems to have produced the best results. The results summarized in Tables 3 and 4. As expected, both capital labour in Equation 6.1 produced expected signs and statically significant coefficients. Also, as expected, capital labour alone explained only 35% of the variations in overall growth rate. Similarly, Equation 6.2 with the ation of the exports variable, produced expected signs statistically significant coefficients. However, the improment in the overall fit of the equation was only margi

'Exports as a determinant of economic growth has been analysed in many studies (e.g. Balassa, 1978; Feder, 1982; Ram, 1985).


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1238 M. /.ATable 3. Regression results of Equation 6, estimated using shares of manufacturing and industrial output over the period 1961-89Equation6.16.26.36.4

a0.63(2.24)**0.47(1.63)***

- 6 . 6 9( - 2 .6 2 ) *- 1 1 . 0 8( - 4 .8 6 ) *

KT0.39(6.96)*0.40(7.27)*0.35(6.41)*0.28(5.29)*

LT0.30(2.42)*0.27(2.16)**0.26(2.13)**0.24(2.12)**

XT

0.07(2.23)*0.05(1.88)*0.05(1.77)*

PI

2.02(2.83)*

PM

4.01(5.12)*

F9.99

11.99131.3062.56

R^0.350.380.410.48

D W1.761.831.831.90

*Significant at the 1% level using one -tailed test.**Significant at the 5% level using one-tailed test.***Significant at the 10% level using one-tailed test.The i-values are in parentheses.

Table 4. Regression results of Equation 6, estimated using growth rates of manufacturing and industrial output over the period1961-89Equation KT LT XT IT M T D W6.56.6

0.74(3.73)*0.27(1.45)***

0.10(1.94)**0.34(8.59)*

0.23(2.65)*0.12(1.47)***

0.02(1.13)0.04(1.72)**

0.33(10.59)*

0.28(10.78)*

18.7127.48

0.710.76

1.972.25

*Significant at the 1% level using one-tailed test.**Significant at the 5% level using one-tailed test.***Significant at the 10% level using one-tailed test.The t-values are in parentheses.

Thi s i s cons is ten t wi th som e em pir ica l f ind ings s ugges t ingtha t expor ts account fo r on ly a sma l l va r ia t ion in the growtho f a d v a n c e d e c o n o m ie s . Re s u l t s of E q u a t i o n s 6 .3 a n d 6 .4 ,how ever , a re o f spec ia l sign i f icance he re . Both equ a t io nspe r form ed v e ry we l l, wh en the sha re of indu s t ry and thema n u f a c tu r i n g s e c to r s w e r e i n c lu d e d a s t h e f o u r th v a r i a b l e .Al l four va r iab le s p ro du ced t he expec ted s igns an d s ta t i s -t ica lly signif icant coeff ic ients . Bu t wha t is especia lly im po r-tant is the size of the coeff ic ients of the four th var iable . Sincethe e s t i ma t ion s a re in do ubl e - lo g form, these coe ff icien ts a ree la s t ic i t ie s wi th r e spec t to each va r iab le and can be d i rec t lycom pa red . Th e indu s t r ia l sha re pro du ced a coe ff icient o f2 .02 meaning tha t a one pe rcen tage po in t r i se in the sha re ofi n d u s t r i a l o u tp u t w o u ld a d d o v e r tw o p e r c e n t a g e p o in t s t othe ove ra l l g rowth ra te . S imi la r ly , a l l va r iab le s in Equa t ion6.4 yie lde d the exp ected sign s an d signif icant coeff ic ients ,wi th the m anu fac tu r ing s ha re prod uc ing a coe ff ic ien t whichis twice a s b ig a s tha t o f the ind us t r i a l sh a re in Eq ua t io n 6 .3 .The dif ference in the size of the four th coeff ic ient in the twoe q u a t i o n s s i g n i f i e s t h a t m in in g a n d c o n s t r u c t i o n , t h e tw osegments in the indus t r ia l sec tor , a re gene ra l ly p rone to la rgecyc l ica l swings . I t sho uld be po in ted o u t he re tha t w henE q u a t i o n 6 w a s e s t ima t e d u s in g t h e s h a r e o f p r o d u c e rse rv ices , the coef fic ien t tu rn ed ou t to be nega t ive a ndsta tis t ica lly insignif icant.

N e x t , E q u a t i o n 6 w a s r e e s t ima t e d u s in g r a t e s of g r o wth e i n d u s t r i a l a n d t h e ma n u f a c tu r i n g s e c to r o u t p u t . r e s u l ts a r e s u mm a r i z e d i n T a b l e 4. Bo th E q u a t i o n s 6 .56 .6 pe r form ed ex t rem e ly we l l . Fo r ins tance , in Eq ua t io nboth cap i ta l and labour y ie lded s ta t i s t ica l ly s ign i f ican tf ic ien ts . Al though the expor ts va r iab le p roduced thepec ted sign, i ts coeff ic ient w as no t s ta t is t ica ll y signif iT h e i n d u s t r i a l s e c to r g r o w th r a t e , h o w e v e r , p r o d u c e dlargest coeff ic ient with a very large t-value . A 1% r isgrowth ra te o f the indus t r ia l sec tor would lead to exacth i rd of a pe rcen tag e po in t inc rease in ove ra l l g ro wt h ral a r g e F - v a lu e a n d a c o r r e c t e d R of0.71 ind ic a ted a gooo f t h e e q u a t i o n . E q u a t i o n 6 .6 p r o d u c e d e v e n s t r o n g esults , with a l l coeff ic ients bein g sta t is t ica lly signif icant, id in g t h a t o f t h e e x p o r t s v a r i a b l e .

Long-run growth impactAll the results from empirical testing of the model, using sectoral shares and growth rates of the manufactuand industrial sectors, seem to suggest that there are sadverse growth implications of deindustrialization. Hever, all these tests were aimed at determining the shorteffects. To explore the long-run effects, we estimated


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Growth effects of structural changes in the Canadian economy 1following equations:

u, (7.1),.+r, (7.2)

In these equations, all variables are the same as definedearlier, but we em ploy the Almon method of distributed lagson the variables representing GDP shares of industrial andthe manufacturing sectors. The results of the regressionanalyses are summarized in Tables 5 and 6.The basic estimation procedures employed were the OLS.However, GLS procedures were applied in order to correctfor the presence of first-order autocorrelation. Variousspecifications w ere tried. But in the e nd, a double-log formand a second-degree polynomial with a five-period lagstructure yielded the best results. One endpoint restriction,namely, the tail, was imposed on the parameters. The resultsare similar to those of Equations 6.3 and 6.4 in many ways.Both labour and capital produced statistically significantcoefficients in Equation 7.1.However, although the coeffic-ient of exports variable had the right sign, it did not producea large enough f-value. How ever, in Eq uation7.2coefficientsof all three variables had the rightsignsand were statisticallysignificant. Also, there were marked improvements in thecorrectedR^ .The time profile of industrial and the manufac-turing sector shares in these equations is of special interest.In Equation 7.1,the first two short-run coefficients had theexpected signs and were significant at the1 level. The lastthree had the oppositesignsbut only two had a large t-value.How ever, the long-run coefficient had the expected sign andwas found to be significant at the 10% level. Similarly, inEquation 7.2, the first two short-run coefficients had theexpected signs and were significant at the 1% level. TheTable 5. Regression results of Equation 7.1, estimated over theperiod 1961-89

Table 6. Regression results of Equation 7.2, estimated oveperiod 1961-89

T01234

Cons tan t =Rhol = 0.70

KT0.304(5.74)*

- 1 . 7 9 , R

LT0.311(2.67)*

2= 0.57, F =

XT0.036(1.26)

23.63, D W =

PI4.372(4.46)*1.506(3.16)*- 0 . 6 1 0

(-0.85)- 1 . 9 7 5( - 4 .0 9 ) *- 2 . 5 9 1( - 2 .7 2 ) *0.702(1.42)**

1.89,

r01234

Constant =Rhol = 0.52

KT0.280(6.91)*

- 1 . 1 8 9 , F

LT XT0.209 0.045(2.21)** (1.89)**

t^ = 0.79, F =67.80, D W

PM4.2(7.11.6(5.7- 0 . 3 9

(-0.83- 1 . 8 8( - 6 .8 4- 2 . 8 5( - 4 .8 80.7(2.1

=2.05,

*Significant at the 1% level using one-taile d test.**Significant at the 10% level using one-tailed test.The t-values are in parentheses.

*Significant at the 1% level using one -tailed test.**Significant at the 5% level using one-tailed test.***Significant at the 10% level using one-tailed test.The t-values are in parentheses.remaining three coefficients had the opposite signs but otwo had large f-values. Once again, the long-run coeffichad the expected sign and was also statistically significanthe 5% level.

V. C O N C L U D I N G R E M A R K SThe main objective was to test an econometric modeldetermining the growth effects of deindustrialization/vicization. First, Granger causality tests were run betwthe goods and the service sectors and then an economemodel was estimated to quantify the growth effects of recstructural changes in Canada. Both shares and the grorates of industrial and the manufacturing sectors were uas an argument in the model. The results of both tests wconsistent and were in favour of rejecting the null hypoththat such structural changes have had no adverse groeffects. When the Almon method of distributed lags applied, the long-run effects also rejected the null hypotheAlthough the results reported here are exploratory rathan definitive, they do shed important light on the issuesuch, a policy of deliberate industrialization, or, at lecontinuing the current policy tilt in favour of the gosector, seems to make sense. However, a lot more worneeded before any definitive pronouncements can be m

A C K N O W L E D G E M E N T SMost of the research reported here was financed by a gfrom Athabasca University. This is the revised version


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1240 M. /.Anpaper presented at the Canadian Economics AssociationConference, Kingston, 2-4 June 1991. I am grateful to theparticipants of the conference and to M. S. Shedd and F. J.Atkins for their comm ents and suggestions. Several valuablesuggestions by the referee of this journal are acknowledgedwith gratitude. The author alone is responsible for anyremaining errors.

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