DP1030 On the Optimality of Consumption Across Canadian Provinces

Author(s): Tamim Bayoumi
Publication Date: October 1994
Keyword(s): Capital Market Integration, Consumption
JEL(s): E44, F36, R22
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1030

This paper tests for the optimality of consumption across Canadian provinces. The results indicate that consumption is highly integrated within the central and eastern core of the country, based around Ontario and Quebec. This is not true for provinces in the western half of the country, however, or for the most easterly province, Newfoundland. All of the provinces which fail the test for optimality are subject to large regional income disturbances. It is concluded that large enough disturbances can limit financial intermediation even when capital markets are highly integrated, as they are in Canada.