6

TRANSPORTATION AND
REGIONAL ECONOMIES

Transportation is an important link in the Canadian economy, necessary for moving people and goods within provinces, between provinces, and between provinces and other countries. This chapter demonstrates the importance of transportation to provincial economies through the use of two indicators: the value-addedNote 1 of commercial transportation firmsNote 2 located within provincial boundaries; and the domestic demandNote 3 for transport-related goods and services purchased by provincial residents. Within this chapter, use of these two indicators is based on data taken from Canada's system of national accounts for 1999, the latest year for which provincial data are available.

This chapter also provides a socio-economic profile of the provinces, which describes some key aspects of the population, geography and economy that influence the relative importance of transportation to overall provincial economies.

The value-added of commercial transportation will be compared with provincial gross domestic product (PGDP), the standard measure of a province's total value of production. Domestic transportation demand will be compared with a province's final domestic demand (PFDD), a measure of the total value of sales in the provincial economy. The two aggregate economic measures are related in that PGDP is equal to PFDD, plus the trade balance.

A Socio-Economic Profile of Provincial Economies

The importance of transportation to a provincial economy, and its predominant modes, is primarily determined by the province's geography, its economic structure, and to a lesser extent, its demographics. The factors that influence the supply and demand for transportation within a provincial economy can be better understood by taking a socio-economic look at Canada's provinces.

Geographic factors include a province's geographic area, the relative dispersion of the population, and the existence of natural barriers to transportation, such as mountains or oceans. For example, the territories and Quebec have the largest geographic areas in Canada. The territories, Newfoundland, Manitoba and Saskatchewan have the lowest population densities. The territories and eastern provinces have a higher proportion of rural population than that in the central and western provinces. Areas with the highest elevation are found in the territories, British Columbia and Alberta, while Newfoundland and Prince Edward Island are islands.

Another major geographic factor is location relative to major markets and producing centres. In Canada, the relative proximity of Ontario to major US markets coincides with the lowest share of transportation in all provincial economies, while the relative proximity of Manitoba and New Brunswick to central Canada coincides with the highest shares of transportation in all provincial economies. Their adjacent and central locations may make these provinces good hub locations for transportation moving into and out of central Canada, thus attracting a higher share of transportation company operations and head offices.

The size and structure of a province's economy also strongly influence the relative importance of transportation, particularly the modal split of transportation activities within the province. There are two major economic characteristics that come into play here: the share of primary commodities in a provincial economy; and the relative importance of trade. As Table 6-1 shows, Alberta, Saskatchewan and the territories have the highest share of primary commodities, while Ontario and Quebec have the lowest share. In terms of trade in 1999, Ontario, New Brunswick and Saskatchewan have the highest levels of exports, while the four eastern provinces have the highest levels of imports.

Relative provincial economic growth also influences transportation industry growth. As Table 6-1 shows, Newfoundland, Nova Scotia and Ontario experienced the fastest growing economies in 1999. This growth in Newfoundland and Nova Scotia resulted from new energy sources, and in Ontario from manufacturing and trade with the United States. The western provinces, particularly Saskatchewan, experienced the slowest growth, due to depressed world commodity prices in 1999 and continuing slow Asian growth.

Finally, a province's demographic make-up can influence the relative importance of different aspects of transportation - notably consumer demand for certain types of transportation, such as vacation-related travel or pick-up trucks. By population, the provinces are uneven in size, with Ontario and Quebec accounting for over 60 per cent of the country's total and thereby also accounting for the majority of transport activity. In general, the provincial populations have a relatively similar age structure. The northern territories (Yukon, Northwest Territories and Nunavut), however, are characterized by a large proportion of people under the age of 15 and a relatively small proportion of people over 65. Over the last five years, population growth has been concentrated in Ontario, Alberta and British Columbia, while Newfoundland has experienced a net decline.

The Value-Added of Commercial Transportation

The relative share of commercial transportation in provincial economies can be examined in terms of its portion of PGDP.

In the eastern provinces, commercial transportation represents a high portion of PGDP because of the relatively large distance from markets in central Canada, the high share of imports, and the moderate levels of primary commodity production. As New Brunswick is the closest eastern province to both central Canada and the United States, it may act as a hub for transport to and from the eastern provinces. New Brunswick, therefore, has a higher share of commercial transport than the other eastern Canadian provinces, and the second highest share, after Manitoba, of all provinces.

The geography of the eastern provinces influences the relative importance of the modes, notably on the two islands of Newfoundland and Prince Edward Island, where marine is the most important transport mode and has the largest share of PGDP of all provinces. Newfoundland also has the highest share of the air mode of all provinces. Truck transport is the most important mode in Nova Scotia and New Brunswick, with trucking in New Brunswick having the largest share of all provinces.

In central Canada (Ontario and Quebec), commercial transportation accounts for relatively low shares of PGDP because of the low share of primary commodities in the economy, the relatively higher population density, and the proximity to large US markets.Note 4 In both provinces, the most important mode is trucking, followed by public passenger transit.

In the western provinces, commercial transportation accounts for relatively higher levels of PGDP because of the reliance on primary commodity production, the lower population density, and the larger distance from markets relative to central Canada. Manitoba has the highest commercial carrier share of all provinces, possibly due to its location as a hub for western traffic coming into and out of central Canada. British Columbia is similar to Manitoba in that it is a hub for transport to the Pacific Rim countries, which, combined with its difficult geography, also generates a relatively high share of commercial transportation. Saskatchewan also has a relatively high level of commercial transportation, while Alberta has the lowest share of the western provinces.Note 5 The territories also exhibit a relatively high share of commercial transportation, due to the dispersion of population and the distance from southern Canada.

The main modal characteristic of the western provinces is the higher importance of rail transport. Rail is the most important mode in Saskatchewan, which has the highest share of rail as a percentage of PGDP of all provinces. In Manitoba, Alberta and British Columbia, trucking is the largest mode, followed by rail in Manitoba and Alberta, while marine is second to trucking in British Columbia. The share of air in the territories is higher than for all provinces. Table 6-2 shows the relative share of commercial transportation in provincial economies in 1999.

Table 6-3 illustrates annual growth in commercial transportation in 1999. In the eastern provinces, commercial transportation growth lagged behind PGDP growth in all provinces except New Brunswick. The fastest growing modes were rail and truck freight, while declines were posted by water and air transport in Prince Edward Island and air transport in Nova Scotia.

Commercial transport growth exceeded PGDP growth in Ontario but lagged PGDP growth in Quebec. The highest growth rates were for trucking in Ontario and rail in Quebec, with air transport posting declines in both provinces, along with marine in Ontario.

In all western provinces, commercial transport growth exceeded or equalled PGDP growth, though not in the territories. Truck transport led growth in all provinces, while Manitoba, Saskatchewan, British Columbia and the territories posted declines for air. Public passenger transit was the leading growth mode in the territories.

Domestic Transport-Related Demand

Domestic transportation demand refers to a broader definition of transport, which includes 1) consumer expenditures on transportation (e.g. automobiles), 2) investment by government and business in transportation equipment and infrastructure, and 3) government expenditures on transportNote 6 (e.g. highway maintenance). Transportation demand refers to the direct expenditures on transport-related goods and services by consumers, businesses and governments located within the province. Domestic transport demand can be compared with provincial final domestic demand (PFDD), the total value of all goods and services sold within the provincial economies.

Domestic transportation demand can be examined as the relative proportion of provincial final domestic demand. The most interesting observation is the predominance of personal expenditures, which form the largest segment of domestic transportation demand in all provinces and territories. The largest component of personal expenditures in all provinces, except Prince Edward Island and the territories, is new and used transportation equipment. In Prince Edward Island, the largest component is fuel and lubricants, while in the territories it is purchased commercial transportation. The second largest component of transportation demand in all provinces, but not in the territories, is transportation investment. The largest component of investment is in transportation equipment in all provinces, except Prince Edward Island and the territories, where infrastructure investment, such as roads and airport runways, is larger. Government spending on transportation forms the smallest component of total transportation demand in all provinces, but is larger than the investment component in the territories.

In 1999, New Brunswick had the highest level of domestic transportation demand of all provinces, generated by a relatively high level of consumer and business demand for transportation equipment, as well as a high level of infrastructure investment. Ontario and Quebec were next, due largely to high levels of personal expenditures on transportation equipment. The lowest levels were in the territories, Saskatchewan, Newfoundland and Nova Scotia.

Table 6-4 indicates the relative proportion of domestic transportation demand as a portion of provincial final domestic demand in 1999.

Table 6-5 shows the annual growth in domestic transportation demand in 1999. In Newfoundland, Prince Edward Island, Quebec, Ontario and British Columbia, growth in transportation demand exceeded growth in provincial final domestic demand. The highest growth was in Newfoundland and Ontario, fuelled by increased equipment purchases by consumers and businesses. Declines in growth in transportation demand in Saskatchewan and the territories are consistent with declines in total provincial domestic demand and result primarily from declines in equipment purchases by consumers in Saskatchewan, and from declines in purchased commercial transportation in the territories.

NOTES:

1 Value-added refers to the payments (e.g. wages, profits) made to the principal factors - labour and capital - employed in production throughout the provincial economy. As value-added is determined by the payments to labour and capital, using this concept means that the importance of transport to provincial economies is determined by the location of the workers and capital employed by commercial carriers. Value-added is a measure of the production or supply of transport.

2 Commercial transportation can be defined as industries that transport goods and/or passengers for a fee.

3 Domestic transportation demand measures direct transport-related expenditures by consumers, businesses and governments located within the province. It underestimates the value of commercial transportation to provincial economies because it does not take into account indirect transportation used by industry to produce non-transport-related goods and services (e.g. shoes or apples).

4 It is also possible that the central provinces are served by a higher proportion of transportation firms located in other countries, thus reducing the relative importance of the value-added of domestic commercial transportation firms located within those provinces.

5 The commercial carrier share of the provincial economies in Alberta principally, but also Saskatchewan, will considerably underestimate the importance of transportation to these provinces, as the principal and most valuable primary commodities produced (oil, natural gas) are generally transported by pipeline. Pipelines are currently not considered transportation by Transport Canada, but will be in 2001 with the advent of the North American Industrial Classification System.

6 Government expenditures consist primarily of highway maintenance and urban transit subsidies; they do not include government investment in roads, which forms the principal component of infrastructure investment.