ntre for11 ource Studies

Queen's UniversityKingston, Ontario The Imp c

~he Mining

Indu tries on,

anadianR. W. BOADWAY

J. M. TREDDENIC

R. w. BOADWAY

J. M. TREDDENICK

Centre for Resource Studies

Queen's University

Kingston, Ontario

The Impact of theMining Industrieson the Canadian Economy

HO9506C22863

The National Impact of Mining Series

1 The Impact ofthe Mining Industries on the Canadian Economy.R. W. Boadway andJ. M. Treddenick.

2 The Transportation Impact ofthe Canadian Mining Industry.lain Wallace.

ISBN 0 88757 001 I

© Centre for Resource Studies, 1977Queen's UniversityDesign Peter DomPrice $3.00

Preface

In 1975, the Centre for Resource Studies commenced a multidisciplinary pro­gram of research on the general subject of The National 1m act oiMining, withthe objective of examining the nature and extent of the effects of the mining in­dustry on the economy and other aspects of Canadian society. The work isbeing carried out both at the Centre and by contracts with specialists at univer­sities across Canada. The Impact of the Mining Industries on the CanadianEconomy is the first report to arise from this program. It will be followed byreports on transportation impacts, health and safety of workers, employmentand wages, mineral trade, and related subjects.

The present study attempts to identify the effects of the mining industrieson the economy by examining how the economy would differ if mining did notexist or alternatively, if mining and related industries were expanded. The au­thors construct a mathematical model of the economy and perform all the de­sired experiments on it, reasoning that the response of the model gives, withinlimits, a representation of the behaviour of the economy. The model used alsopermits conclusions to be drawn about the effects of taxes and tariffs on miningand other industries.

It is the goal of the Centre to make the results of professional research onmineral resource management issues available to policy makers and other in­terested groups, in a readily usable form. Thus, we are very pleased to presentsuch a report as the present; though the methodology is necessarily complex,the authors provide a non-technical explanation of their work and findings forthe genera] reader. Those who are interested primarily in a broad und;erstandingof the research and its application will find chapters I and 2 of particular in­terest. A complete description of the analysis is given in chapters 3 through 6,while interested specialists will find fuli technical details in appendixes I and II.Views expressed are those of the authors, and do not necessarily represent thoseof the Centre for Resource Studies nor of its sponsoring organizations.

C. George MillerExecutive DirectorCentre for Resource Studies

iii

Contents

Preface / iii

Foreword / ix

Summary / x

Resume / xii

1 The Nature of the Study / 1

Introduction / 1An Overview of the Analysis /2Some Limitations of the Analysis / 4

2 A Synopsis of the Results / 7

Introduction / 7The Canadian Economy Without Mining Industries / 8The Expansion of Mining and Processing Industries / 10The Effects of the Tax and Tariff Structure / 12Conclusions / 14

3 A Description of the Model / ',6

Introduction and Overview / 16Production Functions / 18Final Demand Functions / 19Import Supply and Export Demand Functions / 19The Computational Procedure / 20The Experiments Undertaken / 23r \The Choice of Data / 25

( 4 Measuring the Impact of the Mining Industries / 28

Introduction / 28Effects to be Observed / 28Mining Industries Absent: Capital Retai~ed / 31Mining Industries 'Absent: Capital Removed / 44The Effects on the Welfare Index / 51

5 The Effects of Expanding Mining and Processing Industries / 53

Introduction / 53Expanding the Mining Industries / 55Expanding Mineral Processing Industries / 60Increasing Supplies of Labour and Capital / 63

v

6 The Effects of the Canadian Tax and Tariff Structure on theMining Industries / 67

Introduction / 67Distortions due to Tariffs / 69Distortions due to Commodity Taxes /73Distortions due to Capital Taxes / 74The Effects of Eliminating All Tax and Tariff Distortions / 76

Appendix I: The General Equilibrium Model / 79

Notation / 79The Fixed Coefficient Version / 80The Variable Coefficient Version / 84The Welfare Change Measure /85Walras' Law / 85

Appendix II: The Choice and Sources of Data / 87

Tariff and Tax Rates / 87Factor Supplies / 88Demand Parameters / 90Production Functions - Fixed Coefficient Version / 97Production Function Parameters - Variable Coefficient Case / 101Import Supply and Export Demand Functions / 101Inter-Industry Wage Rate Differences / 102Input-Output Coefficients / 103

The Authors / 116

The Centre for Resource Studies / 117

Tables

1 Industry Classification / 26

2 Selected Effects of Absence of the Mining Industries: Capital Retained / 32

3 Industries' Response to Absence of All Mining Industries: CapitalRetained / 35

4 Relative Response to Absence of All Mining Industries: CapitalRetained / 37

5 Classification of Output Changes Resulting from Absence of the MiningIndustries: Capital Retained / 40

6 Selected Effects of Absence of the Mining Industries: Capital Removed / 45

7 Classification of Output Changes Resulting from Absence of the MiningIndustries: Capital Removed / 46

vi

8 Classification of Output Changes Resulting from Expanding MiningIndustries / 56

9 Classification of Output Changes Resulting from Expanding ProcessingIndustries / 61

10 Output Changes Resulting from Eliminating Taxes and Tariffs / 70

11 Tax and Tariff Rates, by Industry / 89

12 Factor Use and Payments, by Industry / 91

,)3 Final Demands, Final Demand Shares, Exports and Imports, byIndustry / 94

14 Cobb-Douglas Industry Production Function Parameters / 9915 Input-Output Coefficients - 1966/ 104

vii

Foreword

~

This study was commissioned in 1975 as part of a larger project on The Na-tionallmpacLof Mining being~ by t e Centre for Resource Studies atQueen's University. We want to express our thanks to the Centre's board of di-

-rector for choosing to support this work and for providing the opportunity towork with the staff of the Centre. We are particularly grateful for the interestand encouragement of Dr. Miller. His suggestions, advice, and incisive ques­tions, arising out of an extremely careful reading of our earlier draft, greatlybenefited the final product. The study was also improved by the comments oftwo anonymous referees and by discussion with members of the Centre's advis­ory council during the annual meetings of 1975 and 1976.

A number of other individuals and organizations made possible the com­pletion of this study. The bulk of the data employed in our analysis was pro­vided by the Structural Analysis Division of Statistics Canada. Our computa­tions were carried out at the Computing Centre of the Royal Military Collegewhere we benefited greatly from the assistance of Mrs. Elizabeth Allen. Mrs.Gerda Pennock patiently and efficiently typed and retyped the manuscripts.

Errors and shortcomings remain the responsibility of the authors.

Robin W. BoadwayQueen's University

John M. TreddenickRoyal Military College of Canada

IX

Summary

In addition to their direct economic contributions of employment, incomes, cap-. ital~~lation, and trade flows, the mining industri@s influence..the Canadian

economy through such indirect means as forward and backward linkages andt!le induced effect of the re-spending of earnings. At the same time, less obvi­ous effects are produced through the industries' requirements of labour and cap­ital, for which they compete with other industries, and through exchange ratefluctuations. The net economic impact will be a composite of aU these influ­ences.

The present study traces all these effects through the Canadian economy in .a systematic way. Using the methodology of a 'general equilibrium compara­tive statics' model, the configuration and behaviour of the Canadian economyat some point in time (1966, the latest year for which data are available) are re­produced in considerable detail. Then, the effect of a change in the economy isdeduced by experimenting with the model. For example, the impact of the pre­sence of an industry is assessed in two ways; by testing how the economywould appear if the industry were absent (i.e. removed from the model), and bytesting the effects of an expansion of the industry. Similarly, the economic re­sults of distortions introduced by the system of taxes and tariffs are deducedfrom the behaviour of the model when the distortions are removed.

The results of the tests should be interpreted with caution because the be­haviour of the model is affected by the many assumptions included in it. Theseassumptions are all made explicit in the report, however, and they are thosegenerally used in economic analyses of this type. Hence, though the behaviourof the real economy cannot be reproduced or predicted exactly, the indicationsare thought to be generally reliable.

The results of the experiments are sometimes suprising; they are not al­ways those which would be predicted from a consideration of the direct and in­direct impacts acting in isolation. Interactive effects, some very subtle, are im­portant. Exchange rate fluctuations and changes in the relative abundance oflabour and capital, caused by the test conditions, have profound but circuitousimpacts.

Within the limitations of the analysis, a number of significant indicationsemerged. If the mining industries had not existed (provided their capital had

x

I

been available for reallocation to other industries) a few industries, mainlysuppliers to mining, would be smaller, but all others would be larger; the gen­eral economic welfare of Canadians would be virtually unchanged. If all or partof the mining capital had been lost, a somewhat different picture emerges: thesame supplier industries would be reduced, while the increases in many otherindustries would be less than before, leading to a reduction in general economicwelfare of up to 2.3 percent. Virtually identical but opposite effects arise whenthe expansion of mining is contemplated. The often-advocated expansion ofsecondary processing improves the general economic welfare slightly (exceptfor the smelting and refining industry, which apparently decreases it). Addi­tional supplies of labour and capital would not favour mining particularly.

One perhaps surprising result is that the 1966 package of taxes and tariffsdiscriminated strongly against the mining industries. This inhibiting effect wasshared by most other primary industries and some manufacturing ones. Theservice industries were correspondingly favoured. The tax changes which haveoccurred since 1966 will do nothing to change the general nature of this obser­vation.

xi

Resume

Outre leurs contributions economiques directes en termes d' emplois, de re­venus, d'accumulation de capital et de flux commerciaux, les industriesminieres influencent r economie canadienne par divers moyens indirects telsque les rappol1s economiques en amont et en aval, et par r effet induit prove­nant de la reutilisation de leurs revenus. En meme temps, des effets moins evi­dents sont produits par leurs besoins en travail et en capital pour lesquels ellesenll'ent en concurrence avec d'autres industries, et par leur impact sur Ie taux dechange. L'effet economique net est la resultante de toutes ces influences,

Cette etude retrace de fa<;:on systematique taus ces effets sur I'economiecanadienne. L'utilisation de la methodologie d'un modele 'd'equilibre generalde statique comparative' pennet de reproduire de fac;:on tres detaillee la confi­guration et Ie comportement de r economie canadienne a certains momentsdonnes dans Ie temps, (1966 est r annee la plus recente pour laquelle lesdonnees sont disponibles). De la, I'effet d' un changement dans r economie estdeduit en experimentant avec Ie modele. Par exemple, r effet de la presenced'une industrie particuliere est mesure de deux fac;:ons; en evaluant Ie com­portement de r economie dans Ie cas ou r industrie est absente de r economie(ou retiree du modele) et en evaluant les effets resultants d'une expansion der industrie. De la meme fac;:on, les resultats economiques des distorsions intro­duites par notre systeme de taxes et de tarifs sont deduits du comportement dumodele lorsque ces distorsions retirees.

Les resultats de ce tests devraient etre interpretcs avec prudence parce queIe comportement du modele peut etre affecte par les nombreuses hypothesessous-jacentes. Ces hypotheses sont toutefois presentees de fac;:on tre explicitedans Ie rapport et eIles sont celles qui sont generalement utilisees dans ce genred' analyse economique. Par consequent, bien que Ie comportement reel deI'economie ne puisse pas etre exactement reproduit ou prevu, a partir du mo­dele on peut en general se fier aux resultats.

Les resultats des simulations sont parfois surprenants, lis ne sont pastoujours ceux qui pourraient etre prevus si l'on tenait compte des effets directset indirects pris isolement: leur interaction, parfois tres subtile, est importante.Les fluctuations du taux de change et les changements dans l' abondance rela-

xii

tive du travail et du capital, causes par les conditions de la simulation, ont deseffets profonds mais indirects.

A rinterieur des limites de cette analyse, un certain nombre d'informationspertinentes ressortent. Si l'industrie miniere n' aurait pas existe (en supposantque Ie capital disponible eut ete alloue aux autres industries) quelques industriesauraient connu moins d'essor, principalement celles responsables de l'appro­visionnement des activites minieres, mais toutes les autres industries en auraientprofite et Ie bien-etre economique des canadiens serait, virtuellement, inchange.Une image differente se degage dans Ie cas ou Ie capital alloue a I'activiteminiere serait en totalite ou en partie perdu; les memes fournisseurs seraient af­fectes de la meme fac;:on tandis que la croissance de plusieurs autres industriesserait moindre qu'auparavant, conduisant a une diminution generale du bien­etre economique pouvant aller jusqu'a 2.3 pour cent. Des effets presque iden­tiques, mais opposes, se produisent lorsqu'on considere I'expansion de )'indus­trie miniere. Le developpement souvent preconise des industries secondaires detransformation ameliore legerement Ie bien-etre economique general (a I'excep­tion des industries de Fonte et d'affinage des metaux qui apparemment Ie di­minuent). Un accroissement de la dotation en travail et en capital ne favoriseraitpas particulierement l'industrie miniere.

Un resultat, peut-etre surprenant, montre que r ensemble des mesurestarifaires et fiscales de 1966 etait tres discriminatoire vis-a-vis l'industrieminiere. Ceci etait egalement Ie cas pour la plupart des autres industriesprimaires et pour quelques industries manufacturieres. Le secteur des services aete favorise d' une fac;:on correspondante. Les changements fiscaux intervenusdepuis 1966 n'affecteront en rien Ie caractere de cette observation.

XIII

1. The Nature of the Study

Introduction

The impact of the mining industries on the Canadian economy is felt in manyways. Most obviously, the mining industries contribute directly to incomes,employment, capital accumulation, and trade flows. However, though they areimportant and have comprised much of the basis of past discussion of the con­tribution of mineral resources to the economy, these effects do not occur in iso­lation. Mining constitutes a significant part of total Canadian economic activityand as such indirectly influences operations in other sectors through marketmechanisms.

These indirect influences are many. Mining industries, like all others,purchase products from other industries for use in production processes, thusinfluencing the level of activity in these 'backwardly-linked' industries. Mineralproduct outputs are provided for the use of other industries or consumers; thesewould otherwise have to be imported or not used at all. The degree to whichthese minerals are further processed in Canada - 'forward linkages' - is also, yof concern to policy makers. Incomes are re-spent by employees, shareholders, Isuppliers, etc., producing 'induced' effects. The export of mineral materialsand the purchase of imported inputs influence Canada's balance of paymentsand the operation of the foreign exchange marke :Finally, an effect existswhich has not perhaps been adequately considered in the mineral policy debate:the mining industries consume certain quantities of the scarce primary inputs oflabour and capital; they thus compete with other industries for their use. ---/

The overall economic impact of the operation of the mining industry (orany other industry) therefore includes many direct and indirect influences oc­curring simultaneously. In such a complex situation, a systematic way of trac­ing these effects through the economy is required if the contribution of mineralresources to national economic goals is to be realistically evaluated. This studypresents one such framework.

The primary approach of the study is to evaluate the effects of mining onresource a1location l in the Canadian economy. In addition, the economic dataI. We are using the term 'resources' in the economic sense of the primary resources (or factors of

production) such as labour and capital rather than natural resources. Resource allocation refersto the allocation of labour and capital amongst industries and more generally includes the levelsof output and uses of that output for all industries.

used enable us to find how various tax and tariff measures (actual and hypothet­ical) influence both the mining industries and the economy as a whole. Themethodology used is that known in the economics literature as general equilib­rium comparative statics analysis. A specific model of the Canadian economy isconstructed which will produce an allocation of resources identical to that of thereal economy. Such an allocation is called the control general equilibriumwhere the term general equilibrium refers to the fact that demand equals supplyin all markets. 2 In a comparative static analysis, the control general equilibriumis disturbed by changing one or more of the paranleters of the model. Themechanics of the method is to find a new general equilibrium allocation of re­sources, called the shock general equilibrium. By comparing the resource allo­cations of the two general equilibria, one may determine the effects of theparameter change.

The chief drawback of comparative static analysis (as with most economicanalysis) is that the changes undertaken are not performed under laboratoryconditions. Whereas we observe the control general equilibrium in real life, wecannot observe the shock general equilibrium. The changes in resource alloca­tion computed from shocking the general equilibrium will depend upon the as­sumptions underlying the construction of the model. These include behaviouralassumptions about consumers and producers, technological relationships in theeconomy, and the amounts of resources available in the two situations. The re­sults obtained must therefore be regarded as speculative to some extent; yet,they can lead to useful insights since the model to be used is based upon de­tailed data for the control general equilibrium of the Canadian economy.

This introductory chapter will be devoted to a brief summary of the natureof the model and the experiments undertaken. The following chapter gives asynopsis of the results. Chapter 3 outlines the model in its full detail. In chap­ters 4, 5, and 6 the experiments and their results are interpreted fully. Two ap­pendixes expand on the technical underpinnings of the model and the selectionof data. Thus, chapters I and 2 provide a summary of the research for the gen­eral reader. Those interested in the technical details will wish to read further.

An Overview of the Analysis ( f __" , -1-/

~ of assessing the economic impact of mining is to use the model tolearn how the Canadian economy would differ if the mining industry did notexist. Resources now allocated to the mining indu try could have been devotedto other industry uses. Our computations will indicate which industries are mostaffected by the existence of the mining industry. One shock general equilib-

2. The term 'market equilibrium' is used to refer to a situation in which demand equals supply in aparticular market. The economy is said to be in general equilibrium when all markets are inequilibrium simultaneously.

2

rium, then, is that equilibrium obtained when the mining industry (or somespecific parts of the mining industry) is assumed not to exist or is 'shut down'.This shock solution will indicate how the market mechanism would allocate toother industries the resources thus released. It is important to state clearly thatwe are not contemplating the shutdown of the mining industry as a policy op­tion. Rather we attempt to assess how the economy would have evolved hadmining not existed. ---

There are many routes by which the impact of the mining industry is felt ~by other sectors. Most studies to date have focused on the influence the miningindustry has as a purchaser of inputs from other industries (backward linkages) ..........and as a supplier of inputs for use in other industries (forward linkages). 3 Theinput-output tables 4 provide an ideal tool for measuring such linkage eff~One can easily trace out the effects of a change in the mining industry as itworks its way through the input-output tables.

Such studies, however, ignore additional important influences that themining industry has on other industries via the market mechanism, and there­fore are probably not very accurate indicators of the impact of large changes.The most important of these other influences arises from the fact that theeconomy faces a constraint in primary resources or factors of production (unlessthere is widespread unemployment of both labour and capital). The mining in­dustry bids for both labour and capital in competition with other industries.With a limited amount of both labour and capital available the markets for theseresources will adjust to give an equilibrium price of labour (wage rate) andprice of capital (rental rate) which will ration out the available supplies oflabour and capital to their best uses. The mining industry will influence theoutputs of other industries both by making less of these resources available tothem and by changing the relative prices at which labour and capital may bepurchased. For example, if mining uses large amounts of capital (relative tolabour) compared with other industries, the overall effect of the mining industrywill be to cause the price of capital to rise relative to that of labour. In turn, thishigher rental-to-wage ratio will cause other industries to use more labour- .intensive methods of production than they otherwise would. Furthermore, in­dustry output prices depend upon the prices of inputs. Changes in the relativeprices of labour and capital will affect the final prices of the various industryoutputs differently. And when relative prices change, patterns of final demand

3. Studies of this nature include M.W. Bucovetsky,'A Study of the Resource Industries in theCanadian Economy', Working Paper 7301, Institute for the Quantitative Analysis of Social andEconomic Pol icy, University of Toronto; J. Stahl, 'The Mineral Industry and EconomicDevelopment" , Department of Energy, Mines and Resources, December, 1974, (mimeo); andL.S. Wilson, 'Some Factors Relating to the Attraction of Manufacturing Industries to the

Province of Alberta', M.A. thesis, The University of Alberta, 1971.4. Input-output tables depict the flow of goods through all industries of the economy for any given

year. A full description of them is given in chapter 3.

3

for th' produci change and induslry oulpUlS ar' affected. A/I of th '$ influ­ences, operating via pri chang sand d p nding ultimately upon the resourceconstraints in the economy, are incorporated into our general equilibrium modelin addition to the inter-industry linkages mentioned above.

One final influence of the mining industry which is of obvious importancein the Canadian economy is that which operates via foreign trade. The shockequilibrium (i.e. if mining did not exist) will involve different amounts of bothimports and exports. Industries which previously used domestically producedmaterials from the mining industry will now have to import their materials,whereas the exports of the mining industry will no longer exist nor will any im­ported inputs to the mining industry be required. In order to maintain equilib­rium on the foreign exchange market, either the exchange rate must change or achange in capital inflows must Occur to offset the change in the trade balance.In our computations we have assumed that changes in the exchange rate will actas the equilibrating device. The change in the exchange rate from shocking thesystem by shutting down the mining industry will indicate the overall impact ofthat industry on the balance of payments.

The details of the model in which all of the above effects are incorporatedwill be left until chapter 3. Our main experiments with the model are to shutdown the mining industry as a whole and also to shut down individual sub­industries within the mining sector one at a time (e.g., coal mining, gold min­ing, etc.). In addition, the model is suited to a number of other experiments.For example, we evaluate the effect of the existing (1966) set of taxes andtariffs on the mining and other industries by removing them and looking at theshock equilibrium. Additionally, we test the effect on the economy of inducingfurther processing of minerals in Canada rather than exporting them to be pro­cessed abroad. Finally, we consider how additional capital or labour resourcesmade available to the Canadian economy would be most efficiently allocated todifferent industries.

Some Limitations of the Analysis

As mentioned above, because we are not working under laboratory conditions,we cannot observe how the economy will actually behave when we shock it.The results we obtain from the model will, therefore, depend upon the assump­tions we made as to how the economy operates. Some of the limiting assump­tions of the analysis will be outlined here. These assumptions will, of course,influence the reader's interpretation of the results.

All models of the economy are of necessity abstractions of the real world.Most of the ways we have abstracted are commonly used in the economics lit­erature (and in the statistical data available). In this particular model, the totalCanadian economy is divided up into fifty-six industries, each of which utilizes

4

labour, 'apital, and int 'rm 'diate inpuls from other d mestic or foreign in~us­

trie t pr du e output.~ This output i sold either for final use or for use 111

other industries. All sales and purchases of both goods and facto~6 take placeon competitive markets. On each market a price is estab.lished ~hlch Just clearsthe market (makes supply equal demand). Firms maximize profits and consu~­

ers maximize well-being. Labour and capital are homogeneous resources whichmay be used in any industry and which are mobil~ among industries ..Themodel assumes that all primary factors of productIOn (labour and capital) are

employed. ..By allowing for only two primary factors of production we are.d~aw1l1g no

distinction between capital and land or natural resources. Although It IS co.nven­tional in the general equilibrium literature to do this it is no~ al~o~ether s~tlsfac­

tory, since it ignores the fact that some of the return to 'capital' m the pnmaryindustries may represent a pure rent element. Furthermore the natural reso~rce

in question is not mobile between industries in the same way t~at reproduciblecapital is. The importance of this omission is still a matter of dispute amongsteconomists. For example, much of what is normally called rent may actuallyreflect a reward for exploration and development, so the rental element may notbe large. In any case the input-output data we are using do. not (and could not)distinguish between the return to capital and any rent to pnm~ry resources.

The models we are using are static. That is, we are lookmg only at a gen­eral equilibrium in the economy at a point in time (in our case, 1966)7 ratherthan at changes in the economy over time. The conceptual nature of the shocksolution is that it indicates how the economy might have looked had the shockmodel of the economy existed now rather than the control rr:odel. It should notbe interpreted as indicating what the economy would look like after It was..shocked and enough time had elapsed so that all markets had come to eqUlhb­rium. During that adjustment time, many other things would have c.hanged 111

addition to the changes due to the shock. Comparative static analySIS abstractsfrom time entirely by assuming everything instantaneously adjusts to the shock.Therefore, the shock solution must be viewed as a purely conceptual.gen~ral

equilibrium depicting how the economy might have looked had certam thll1gsbeen different.

The nature of the resource constraint is one of the most difficult to formu~

late and justify. It involves answering the question, How much labour an~ capi­tal resources would have been available had the shock assumptIOns been 111 ef-

5. The fifty-six induslries are listed in table I. . . I6 The term 'factors' refers to the primary resources (or factors of productIOn) labour and capIta.

. The choice of 1966 as the year of interest is dictated by data limitations. That IS the most recent7. year for which the requisite input-output data were available. Since structural changes In the

Iy develop slowly we consider the qualitative results obtaIned to be applIcable to aeconomyon, . ., . d f . .f d notJ'ustl966 An obvious exceptIon IS In the flel 0 taxatIOn, Inbroad spectrum 0 years, an . . .

which major revisions have taken place since the year In questIon.

5

f 'ct rath 'r than th cll1lrol assumptions? f;' r example, if the shock generalequilibrium involved operating without the mining industry, would the ameamount of apital have been available for use elsewhere? it might not havebeen, given that much of the capital came from foreign sources. To test thispoint, we have performed our computations under three alternate sets of as­sumptions. In the first, the aggregate supplies of both labour and capital wereassumed to be the same in both the control and shock general equilibria. In thesecond, the supply of labour was assumed fixed, but the capital used in the in­dustry to be shut down was assumed not to be available for use elsewhere.Since the truth probably lies somewhere between these two extremes, a thirdexperiment was performed in which fifty percent of the capital was retained.

The model ignores both interregional effects and income distribution ef­fects of the mining industry. Conceptually both could have been incorporatedinto the model but the data required to include these effects are not available.For the former, an interregional input-output table would be required. For thelatter, we would require detailed factor ownership and expenditure data on in­dustries by income group.

Finally, the results of the experiments are speculative to the extent that wehave had to choose parameters for our demand and production functions some­what arbitrarily. However, sensitivity tests that we have performed indicate thatthe results are not overly sensitive to the parameters chosen. Chapter 3 containsa full discussion of the nature of the demand and production functions and theparameters chosen for them.

Nevertheless, despite these limitations the results we obtain are qualita­tively very significant. They indicate the industries which benefit most from theexistence of the mining industries. They also show the 'opportunity cost' of theexistence of the mining industries, in the sense that they show which industrieswould have acquired the resources now used in mining industries had the latternot existed. Our results indicate the effects on resource allocation of expansionsof both the mining industries and the processing industries. Finally, we obtainestimates of the extent to which the 1966 set of taxes and tariffs discriminatedagainst mining vis-a-vis other industries. All of these findings are important topolicy makers in laying out a strategy for mineral policy in the future.

6

2. A Synop Is of the Results

Introduction

The economic model used for all experiments has been briefly described. De­tails of the model and a full examination of the experiments themselves - andtheir results - are given in later chapters. The purpose of the present chapter,however, is to present a synopsis or overview of the results for the general

reader.In interpreting the results, it is important to keep in mind the. na.ture and

limitations of the analysis. All computations use the general equllibnum mo~el

to calculate how the economy would look if something in the system were dIf­ferent. The exercises we conducted are, therefore, a series of counterfactual ex­periments designed to answer the question, How would resources be allocated'in the economy had another set of circumstances existed rather than those.which actually did exist? Every industry's outputs, inputs, and product pnceswould differ in the new circumstances, as would factor prices and exchange

~. . - .~The changes in the system we have consIdered are th Jlowmg. .

i Eliminating the mining industry's production entirely (and assumlllg Imports

fill any domestic requirements for the product).ii Expanding the industry's output incre~ntally. .iii Increasing the available supplies of primary resources (labour and capital)

incrementally.iv Eliminating distortions caused by taxes and tariffs. ...Ea of these chanoes will he!,p us to assess the im act of the mllllllg Illdus­tries in the Canadian econon"!y and, in the case of (iv), the influence of tax andtariff policy on mining industries vis-a-vis that on other industries. The com­putations, however, are to be considered hypothetical exercises in the sensethat the changes we compute are not those one would observe if they were to,take place in the real world. Rather, equilibrium computed under the changedconditions indicates what the economy might have looked like now had thechanges been in existence while the present economy was evolving.

There are two reasons for this. First, the model is static and looks at theeconomy at only one point in time. Any actual change would t~e time to work

7

its way through, and with the passage of time many other things could occur.Short-term disruptions could be severe. The other reason why our computedchanges might not agree with what would be observed is that we have had tohypothesize specific functional forms for the production and demand relationsin the economy. Since the empirical evidence is scanty in this area, there is noway of knowing how accurate they are. However, we have some confidence inthe general qualitative thrust of the conclusions - if not the exact quantitativeresults - because all relationships in the model have been made to conformexactly to the real world at one point: the computed equilibrium for the controlsolution exactly represents the economy which was observed in 1966.

The following sections summarize the results that have been obtained forthe various experiments outlined above. The main results of interest are the ef­fects of the changes on the outputs of various industries, the wage-rental ratio I ,

the exchange rate, and the welfare index. 2 In addition we shall provide a briefdescription of the causal forces at work leading to these results.

The Canadian Economy without Mining Industries

These experiments 3 were conducted to see how the economy would haveevolved in the absence of mining industries individually and in groups, and toobserve how the existing resources would have been reallocated as a result. Theoutcomes of all of the shutdowns were amazingly similar. When mining indus­tries are absent, a few other industries suffer a decline in output. These aremainly industries which are suppliers of inputs to the eliminated mining indus­tries, but also include industries which rely heavily on imported inputs whichbecome more expensive due to a rise in the price of foreign exchange. The in­dustries declining, in order of percentage decline, were Services Incidental toMining, Utilities, Construction, Education, Hospitals, and Health, andRailTransport.

All other industries rose in output when the mining industries were absent- some much more than others. Those rising most tended to be industries pro­ducing tradeable commodities, capital-intensive industries, industries using

I. The 'wage-rental ratio' is described in chapter3. It is a convenient term which expresses therelative prices of the two primary resources, labour and capital. For example, if some change inthe economy is reflected in a tighter labour market, the price of labour (wages) rises. If theprice of capital (broadly, the interest rate or return to capital, here called 'rental') staysconstant, then the wage-rental ratio rises.

2. The 'welfare index' is a computed quantity which is a measure of the well-being of the peoplein the economy. The exact definition is expressed mathematically in appendix I; broadly, anyreduction in the quantities of various goods available for final consumption is reflected in alower welfare index.

3. For a full discussion of these experiments, see chapter 4. Results are displayed in tables 2, 3, 4,5,6,and7.

8

capital-intensive input, or combinations of the above. Overall, these tended tobe primary industries and selected manufacturing industries. In order of percen­tage changes those increasing most were Petroleum Refining, Machinery,Petroleum and Gas Wells, Motor Vehicles, Aluminum Rolling and Extruding,Miscellaneous Manufacturing, Iron and Steel, Rubber, and Metal Fabricating.

The relative impact of the various mining industries tended to depend upontheir comparative sizes. The effects of Metal Mines tended to exceed those ofNon-Metal Mines. Within Metal Mines, Base Metal Mines had the strongest ef­

fects.Most readers might expect declines in dependent industries when mining is

absent, but some may be puzzled by the increase of other industries and by theparticular patterns of increase and decrease. The indirect effects of the absenceof an industry are very important, and include changes in the export/import ba­lance, the exchange rate, and the relative availability of labour and capital. Inall the experiments with mining absent, the price of foreign exchange rose (thatis the value of the Canadian dollar decreased), mainly due to the absence ofe~port sales from the missing mining industries. When all mining industrieswere absent together, the price of foreign exchange rose by about five percent.This rise assists other export industries by making their products appear cheaperto foreigners and assists import-competing industries by making imports moreexpensive to Canadians. On the other hand, industries using imports as inputsinto their production processes are hurt by the higher price of imports. As itturns out, these influences working through the exchange rate are the most im­portant determinants of industry output changes in the majority of our experi­ments. This might be expected in a country as dependent upon foreign trade ­particularly in minerals - as is Canada.

The wage-rental ratio is greater when most mining industries or groups ofmining industries are absent. These results are directly attributable to the capitalintensity of the industry removed. If an industry has a capital-labour ratiohigher than the national average (as have most mining sectors), its absence willinduce a rise in the wage-rental ratio by making capital relatively less scarcecompared to labour. Only when Gold,Coal, and Lime are absent does thewage-rental ratio fall. This effect is due to the low capital-labour ratios of theseindustries. An increase in the wage-rental ratio will tend to favour capital­intensive industries and those using products of capital-intensive industries. Afall in the wage-rental ratio has the opposite effect.

The experiments described above were performed assuming that the capitalemployed in mining would be allocated to other industries if mining were ab­sent. Since this assumption is arguable, the experiments without the mining in­dustries were repeated under the assumption that the capital used in the industrywould not be available to move elsewhere. Only the labour released could beused elsewhere. In all cases the wage-rental ratio falls because of the labour re-

9

leased. The exchange rate usually rises, but by less than before (because thelower wage-rental ratio assists labour-intensive export and import-competingindustries). These experiments, therefore, give us an indication of the relativeimportance of exchange rate changes as opposed to wage-rental changes. Theeffects on industry outputs are remarkably similar to the case in which capital isallowed to move elsewhere. Industries increasing the most in the absence ofmining are Motor Vehicles, Machinery, Leather, Textiles, and Clothing, andMetal Fabricating. The exchange rate changes appear to be a much strongerfactor than the wage-rental changes. The latter does appear to be important incausing Petroleum and Gas Wells and Agriculture to rise by much less than be­fore, since these are very capital-intensive industries. In addition, industriesthat use these products - Petroleum Refining and Food and Feed - rise bymuch less than before. Industries which decline when mining industries andtheir capital are both absent follow the same pattern as when capital is allowedto reallocate.

The experiment was also performed of eliminating all mining industriesand removing one half of this capital from the economy. The results obtainedfell roughly midway between the above two extreme cases.

Surprisingly, the change in the welfare index when mining industries areabsent turns out to be relatively low. In no case where capital is retained doeswelfare fall by as much as one-tenth of one percent. This happens because theCanadian economy is closely integrated with world trade. Thus, the absence ofan industry does not have a disastrous effect due to the availability of importsubstitutes. The same factor presumably would apply to any industry of com­parable size. Where capital is removed, the absence of all mining industries to­gether leads to a welfare reduction of 2.3 percent.

~ The Expansion of Mining and Processing Industries

The effects of expanding individual mining and processing industries 4 werefound by increasing the export demand for the industry's output and computingthe resulting resource reallocation. In the case of mining industry expansion thepattern of induced resource shifts was virtually the mirror image of the effectsof eliminating the industries. Both the wage-rental ratio and the price of foreignexchange fell in all cases except that of Gold. The changes in industry outputswere similar in the case of all mining industry increases. Those expanding wereServices lncidental to Mining, Rail Transport, Truck Transport, and Construc­tion. Industries which decl ined were primary industries and those manufactur­ing industries which are charac~rized by capital intensity and high trade con:~..Apparentlythe mining industries compete most strongly for the nation's

4. For a full discussion of these experiments, see chapter 5. Results are displayed in table 8 andtable 9.

10

resources with manufacturing and primary industries and not so much with ser­vice and other tertiary industries. The particular industries declining most whenmining is expanded are (in order of magnitude) Metal Fabricating, Machinery,Motor Vehicles, Leather, Textiles, and Clothing, Iron and Steel, Smelting andRefining, Agriculture, Petroleum and Gas Wells, Food and Feed, Other Elec­trical Products, Petroleum Refining, and Other Petroleum and Coal Products.

The expansion of all mineral processing industries had similar effects tothose of expanding the mining industries. The wage-rental ratio fell (due to thecapital intensity of processing industries), as did the price of foreign exchange.Those industries induced to expand by the processing expansion were Miningand industries earlier in the processing chain, Utilities, Transportation, Con­struction, Owner-Occupied Housing, and Education, Hospitals, and Health.No manufacturing industries expanded other than the processing ones. The in­austries showing increased outputs tended to be those sell ing outputs to proces­sing industries, those which are labour-intensive, and those using intermediateinputs. The industries which decline were similar to those forced to contractwhen mining expanded. Those declining most were capital-intensive manufac­turing and primary industries which are heavily involved in trade. In order ofmagnitude they were Leather, Textiles, and Clothing, Machinery, Motor Vehi­cles, Metal Fabricating, Agriculture, Petroleum and Gas Wells, Food andFeed, Other Electrical Products, Petroleum Refining, and Other Petroleum andCoal Products. The welfare index rises when all processing industries expandexcept Smelting and Refining. There is no way of telling whether the latter ef­fect (which is surprising) is due to the high aluminum content of Smelting andRefining. One reason for the favourable effect of expanding processing is that,as we find in chapter 6, the tax and tariff structure discriminates heavily againstprocessing industries. Therefore, anything which offsets this discrimination will

tend to increase welfare.In two related experiments, the effects of increased labour and capital

supplies have been computed. Increases in the capital available caused thewage-rental ratio to rise as expected. In addition, the price of foreign exchangerose due to the increased total income in the economy, inducing an increase inimport demand. Some industries actually decline when the capital supply in­creases. Coal output fell significantly, and Other Transport Equipment,Leather, Textiles, and Clothing, and Gold fell by much lesser amounts. Themost substantial increases in output occurred in Petroleum and Gas Wells,Pipeline Transport, Other Petroleum and Coal Products, and Petroleum Refin­ing. When the labour supply is increased the wage-rental ratio falls for obviousreasons. However, the exchange rate unexpectedly falls despite the increasedincome and consequent expenditure on imports. Apparently this is due to thefact that some import-substitute industries are strongly labour-intensive andbenefit from the fall in the wage-rental ratio. Some industries' outputs fall when

II

labour i1> expanu 'u PelroleulI/ aud (;0.1' Wells. Ili/ie!ille Tr{//Is/iol'/, !JaseMel.als, Asbeslos, GYPSUIII, (lnd Olher NOli-Metal Milles. Thos induslries ben­efiting most from the labour increa e were Coal. Machinery, Leather, Textiles,and Clothing, MIscellaneous Manufacturing, Other Transport Equipment, Elec­tncal AppLtances, and Motor Vehicles.

The Effects of the Tax and Tariff Structure5

The data available for 1966 enabled us to calculate average tax and tariff rateson vanous transactions. 6 Tax payments on products going to intermediate andfmal uses are employed to calculate effective or average commodity tax rates one.ach o~ these transactions. Similarly, tax payments of all kinds by corporations(mcludmg mmmg and logging taxes), subdivided by industry, are used to calcu­late average tax rates on the gross return to capital (we will call this the capitaltax rate). Fmally, tarrff collections, subdivided by industry, are used to calcu­late average ~ariffrates on the products of each industry type imported. Sincet~xes and tariffs fallon different industries at different rates, all three tend todIstort the economy, ~iscriminatingagainst some industries and favouringothers. In order to estimate how each type of distortion affects the allocation ofgIven resources a~o~gst industries we have computed the general equilibriathat .result from ehmmatmg each type of distortion individually (with the othersleft m) and then eliminating all tax-tariff distortions together. Because the totalresources avarlable are fixed, any change in taxes or tariffs will cause some in­dustries to rise and others to fall so as just to employ all the resources available.The results of these various experiments are summarized in the followingparagraphs.

When tariffs are removed, the price of foreign exchange rises as expectedand the wage-rental ratio falls, indicating that the tariff structure tends to favourrelatlvel~ labour-intensive industries. The output of all mining industries riseswhe~ tarrffs are removed, due mainly to the assistance to exports from the rise1Il prrc~ of foreIgn exchange. The tariffs, therefore, discriminate against miningIndustrres. The effect of tarrffs on processing industries is mixed, with threefavoured and three hurt. Smelting and Refining is strongly discriminated againstby tarrffs,. whereas Metal Fabricating is strongly favoured. Presumably the lat­ter effect Isdu~ partly. to the fact that this industry is a supplier of inputs tomanufacturrng mdustrres which are favoured by tariffs. The welfare index actu­ally falls by three-quarters of one percent when tariffs are removed. This isprobably accounted for by the fact that, as mentioned below, the taxes tend tooffset the tarrffs In their effect.

5. For a full discussion of these experiments. see chapter 6. Results of the experiments aredisplayed in table 10.

6. See table II.

12

The slructur of colI/lI/odity taxes appears to have only a sl ight effect onthe mining industries. When they are removed, seven of the twelve mining in­dustries increase slightly while the rest fall. The same slight effect is felt onprocessing industries. Smelting and Refining is favoured by removal of com­modity taxes to a small extent, and Other Non-Metallic Mineral Products ishurt to a small degree. The only industries strongly discriminated against bycommodity taxes are those subject to excise taxes -Alcoholic Beverages. To­bacco, and Other Petroleum and Coal Products. The wage-rental ratio fallswhen commodity tax distortions are removed, indicating that the taxes favourrelatively labour-intensive industries. The price of foreign exchange falls,suggesting that commodity taxes work against the protective effect of tariffs.Finally, the welfare index rises by one percent when these taxes are removed.This is a measure of the deadweight loss of the commodity tax system.

The removal of capital taxes has somewhat more Qronounced effects onresource allocation than did the removal of commodity taxes. All mining indus­tries are discriminated against by capital taxes except Coal and Iron, This re­flects the fact that the capital tax rates are higher than the national average inalmost all the mining industries. 7 Capital taxes discriminate against all proces­sing industries fairly strongly - especially later stage processing - and mostmanufacturing industries as well. When capital taxes are removed, the price offoreign exchange falls by. nearly twice as much as it rises on removal of tariffs.This indicates that export and import-competing industries tend to be discrimi­nated against by the capital tax structure. The capital taxes - even more thanthe commodity taxes - work to offset the tariff structure.

When all tax and tariff distortions are removed, all mining industries risein output substantially, especially Coal and Other Non-Metal Mines. The struc­ture of taxes and tariffs existing in 1966 therefore strongly discriminated againstmining industries. The same is true of all processing industries except MetalFabricating. Overall, the tax/tariff structure hurts primary industries and mostmanufacturing ones. The wage-rental ratio falls by fifteen percent when thesedistortions are removed, indicating a strong tendency for the taxes and tariffs toincrease the returns to labour relative to capital. Surprisingly, the exchange ratefalls by nearly ten percent. Apparently tariff policy is being completely frus­trated by the more than offsetting effects of taxes. Finally, the welfare indexfalls by less than one percent when all distortions are removed. Thus, the so­called deadweight loss expected to be imposed by these distortions appears tobe entirely absent.

7. This fact may surprise some readers. It should be borne in mind that total tax payments madeout of corporate income are in question, expressed as a proportion of payments to capital. Seeappendix II for a detailed defin ition of the capital tax.

13

IIII'

Conclusions

In this chapter we have summarized the experiments which are discussed morefully in later chapters of this report. It will be useful at this stage to review themain indications which arise from this work. The implications of the experi­ments should be interpreted cautiously, in the light of the assumptions and limi­tations of the analysis.

1. The impact of the mining industries on the economy is generally discussed interms of their direct contribution (i.e., employment, capita] investment, wages,and product output) and such indirect effects as forward and backward linkages.In a complex system such as the Canadian economy, the present study showsthat more subtle, yet very important, effects arise, as the industries' operationsinfluence the import/export balance, the price of foreign exchange, and availa­bility of the scarce resources of labour and capital. The observed effects areoften surprising: they are not necessarily those which would be predicted fromconsideration of the direct contributions of the industry.

2. If the Canadian mining industry, or major segments of it, did not exist, theresults suggest that:

i some industries would be smaller. These are: Services incidental to Mining,Construction, Rail Transport, Utilities, and such public services as Education,Hospitals, and Health;

ii all other industries would be larger, especiaJly: Petroleum Refining,Machine/y, Motor Vehicles, Aluminum Rolling and Ext{uding, MiscellaneousManufacturing, iron and Steel, Rubber, and Petroleum and Gas Wells;

iii export possibilities would be greatly reduced, and the Canadian dollarwould fall in value by LIp to five percent;

iv changes in the general economic welfare of Canadians would be quitesmall (maximum reduction of 2.3 percent).

3. ]f the mining industries were incrementally expanded and the additional pro­duct exported:

i some industries would expand - as expected - including: Services Inci­dental to Mining, Rail and Truck Transport, and Construction;

ii some industries would decline - perhaps surprisingly - including: MetalFabricating, Machinery, Motor Vehicles, Leather, Textiles, and Clothing,iron and Steel, and Smelting and Refining;

iii the Canadian dollar would increase in value.

14

4. If, as is widely advocated, the further processing of mineral materials wereincreased:

i some industries would expand, including: Mining, Utilities, Transportation,

and Construction;

ii other industries would decline, including: Leather, Textiles, and Clothing,Machinery, Motor Vehicles, and Metal Fabricating;

iii the general economic welfare of Canadians would be increased, (except inthe case of Smelting and Refining) and the Canadian dollar would rise in

value.

5. If more total labour and capital were available in the economy:

i an increased labour supply would favour Coal, Machinery, Leather, Tex­tiles, and Clothing, and Miscellaneous Manufacturing (among others), whilecausing a decline in Petroleum and related industries, Base Metals, and other

mining sectors;

ii an increased supply of capital would have virtually the opposite effect.

6. The Canadian tax and tariff structure leads to some distortions in the

economy:

i tariffs designed to favour manufacturing are more than offset by the taxstructure, which favours the service industries;

ii the combined effect is to discriminate strongly against mining industries andmost resource processing. Most manufacturing is harmed to some extent;

iii replacing the present structure by a completely neutral tax and tariff systemwould remove the above distortions but the general economic welfare wouldbe affected slightly, if at all.

15

3. A Description of the Model

Introduction and Overview

In this chapter, a detailed description of the workings of the general equilibriummodel will be given. The model is a fairly complicated mathematical onewhose exact presentation requires some knowledge of calculus and linearalgebra. We shall endeavour to present a complete verbal description of themodel in the text of this chapter for the non-technical reader. The full details ofthe mathematical computations are presented as appendix I to this study.

The economy consists of three sorts of decision makers: (i) consumers orhouseholds who own and sell the services of labour and capital (the so-calledprimary inputs) and use the proceeds to purchase outputs for final use (calledfinal demands); (ii) producers or firms who produce outputs from purchasedprimary factors and intermediate goods produced by other firms; and (iii) thegovernment which levies taxes and tariffs and uses the revenues to purchasegoods for final use. The output of firms may thus be used either for final de­mands l or for intermediate use by other firms. In addition, Canadian residentsengage in trade with the rest of the world. Imports are purchased for use aseither intermediate inputs by firms or for final demand, and exports are sold.

The production sector of the economy consists of fifty-six industries, thedetails of which are given in table I and discussion thereon. For each industry,the accounting identity holds that the value of all inputs (primary, intermediate,and taxes) equals the value of all outputs. That is, for each industry: wages andsalaries + surplus + other value-added + intermediate inputs from all indus­tries (domestic and imported) = final demand by Canadians + exports - im­ports + intermediate demands by Canadian industries. Surplus is defined to in­clude all payments to capital (profits, depreciation, interest, rent) and othervalue-added is defined to include government goods and services, indirect taxes(other than commodity taxes) less subsidies, and net income of unincorporatedbusinesses. 2 Note also that all the above values are gross of taxes (i .e., final

I. Final demands are normally further classified as consumption, investment, government ex­penditures, and exports. We proceed by aggregating all these final demands together forreasons given below.

2. For an explanation of these categories in detail, the reader is referred to Statistics Canada,The Input-Output Structure ofthe Canadian Economy, 1961, Ottawa, 1969.

16

demand includes retail taxes, intermediate demand includes intermediate taxes,capital and labour include income taxes, and imports include tariffs). In addi­tion to the above accounting identity for each industry, there is a balance-of­payments accounting identity which states simply that the value of ~mports (netof tariffs) equals the value of exports plus capital inflows from foretgn sources.

These accounting identities may all be represented in an input-output flowtable shown schematically in figure I. The sum of each column in this tableequals total inputs into each industry and the sum of each row equals the totaloutputs. Corresponding row and column totals must be the same. We may de­duce from the equality of row and column totals the fact that total payments forvalue added must equal total final demand (which is simply Gross NationalProduct). In addition, by dividing each element in an industry column by thecorresponding column total, we may obtain a column of input-output coeffi­cients showing the values of each input required to produce a dollar's worth of

output.The input-output table represents a snap-shot of the values of actual flows

of production in the economy at a particular period in time. Our task is twofold.First, we wish to obtain a representation of the mechanical workings of the

Figure 1: The Input-Output Table

Final TotalInterindustry Flows* Demand Exports Imports Outputs

Xu XI,2 X I,56 Ql EI -M 1 Xl

X2,1 X2,2 X2,56 Q2 E2 -M2 X2

X56,IX56,2 ...... X56,56 Q56 E56 -M56 X56

Wages &W56Salaries WI W2 .......

Surplus Sl S2' ....... S56

OtherValue-AddedOI °2 , ....... 056

Total Inputs X I X2 . . . . . . . X56

*Xij is the flows of intermcdiatc products from industry i to industry j.

17

economy which will just yield the flow values that are actually observed. And,second, we wish to perturb the economy and compute what the flows wouldhave looked like had the perturbations been in effect. We shall first describe thevarious functional relationships that are assumed to exist, and then explain howthey are used to compute a general equilibrium corresponding to real world val­ues. The functional relationships to be explained include production functionsrelating inputs to outputs in each industry, final demand functions, import sup­ply functions, and export demand functions.

Production Functions

An industry production function indicates the various combinations of primaryInputs (labour and capital) and intermediate inputs (purchased from otherdomestic industries and abroad) required to produce varying amounts of totaloutput for that industry. The combination of inputs actually used depends upontheir relative prices (e.g. if labour is expensive relative to capital, firms willminimize costs by using techniques requiring comparatively large amounts ofcapital and small amounts of labour; that is, they will use capital-intensivetechniques). The production functions we use have several important properties:

i They exhibit constant returns to scale (i.e. a doubling of all inputs will dou­ble output).

ii The two primary inputs are substitutable one for the other; so, firms maychoose amongst varying degrees of capital-intensity (i .e. various capital­labour ratios).

iii We have experimented with two different versions for the intermediate in­puts. In one, they are assumed to be required in fixed proportions to produceoutputs. They can be substituted neither for each other nor for primary inputs.In the other, they can be substituted both for one another and for primary in­puts. As the results we obtain are very insensitive to the choice of representa­tion, we proceed by using the former or fixed-coefficient version for inter­mediate inputs.

The exact functional forms we use are well-known in the economic litera­ture: Cobb-Douglas and Constant Elasticity of Substitution (CES) productionfunctions for primary inputs and Leontief for intermediate inputs. Because ofthe above properties, the following propositions can be shown to hold if allfirms minimize costs: 3

i The quantity of each intermediate input required per unit of output (theinput-output coefficient) is fixed and independent of the level of output pro­duced.

ii The quantity of each primary input required per unit of output (the 'unit

3. Throughout the study, we assume that all industries are perfectly competitive so all firms areprice-takers.

18

coefficient') is a function of the wage-rental rati0 4 and is independent of thelevel of output. The unit labour coefficient decreases with the wage-rentalratio, and the unit capital coefficient increases.

Therefore, given a wage-rental ratio, we can determine the primary and in­termediate input-output coefficients for all industries. Given the total outputs ineach industry we can also determine total demands for each input.

Furthermore, given the input-output coefficients for primary and inter­mediate inputs, the price of a unit output may be determined once we know theprice of all inputs. The output price is simply the sum of the input prices timestheir respective coefficients.

Final Demands Functions

The final demand functions show how the income generated by the economy asa whole (from payments to labour and capital, tax and tariff revenues, and capi­tal inflows) are spent on each industry's output for final use. The purchases ofeach industry's output should depend upon both income available and the priceof the output. To capture these two influences we have used a particularly sim­ple functional form for final demand, one in which the income elasticities ofdemand are unity and the price elasticities of demand are minus unity. 5 This inturn implies that the proportion of income spent on each industry's output isconstant (regardless of any price or income changes). This type of demandfunction, commonly used in input-output studies and elsewhere, was chosenpartly because of its simplicity, partly because it has the desirable properties fordemand functions, and partly because no other reliable empirical estimates ofindustry demand functions are available.

Import Supply and Export Dcmand Functions

The import supply and export demand functions show how the world price ofimports6 is related to the quantity of imports purchased by Canada and how theworld price of each industry's exports is related to the quantity sold. In the caseof imports, the world price is positively related to the amount bought; with ex­ports, the relationship is negative. The exchange rate which converts Canadian

4. The wage rate is the average wage rate in the industry and the rental rate is the price of a unitof capital services or the gross profit or surplus per unit of capital.

5. This implies that a rise in income (with prices unchanged) would cause a proportional rise inthe demand for each good. Therefore the increase is spent in the same proportions as incomealready is spent, and a rise in the price of a good (with income and all other prices fixed)would cause a proportionate fall in the demand for that commodity (the constant of propor­tionality in both cases being unity).

6. The world price is the same as the Canadian price translated into the foreign currency priceusing the Canadian exchange rate.

19

into world prices is 'endogenously' determined (within the model). It is the ex­change rate which just balances the balance of payments. The import and ex­port functions are assumed to be of the constant elasticity sort. Once again,since no empirical estimates are available, we expcriment with various valuesfor the import and export elasticities.

The Computational Procedure

Given the above functions, the total amounts of labour and capital available,the market clearing conditions that must exist (demand equals supply for allproducts, labour, and capital), and the balance of payments requirements, thismodel of the economy can be solved simultaneously for all market clearingprtces (output prices, wage rate, rental rate, and exchange rate). Only a basicoutlineof the method of solution is given here. For a complete description, thereader IS referred to appendix 1.

The solution involves finding a set of prices and resour~e allocations suchthat all the above functional relations, pricing equations, market clearing condi­tions, and the balance of payments are satisfied and, of course, all the availableprimary resources are used up. Ultimately, it turns out that all prices and alloca­tions depend directly or indirectly upon the wage-rental ratio. Therefore, thetrick is to find the wage-rental ratio which just uses up society's resources.

Before proceeding, there is an important technical point to be noted. It iswell-known in the economics literature that a general equilibrium in theeconomy which just clears all markets can only be solved for in terms of 'rela­tive prices' (the price ratios of all pairs of goods) rather than in terms of abso­lute prices. The intuitive reason for this is that a doubling of all prices does notaffect the allocation of resources (the system is said to be homogeneous of de­gree zero in all prices; a general inflation raises the level of all prices propor­tionately but does not affect resource allocation). This implies that the absoluteprice level is indeterminate. A common analytical way to proceed is to select aparticular price in terms of which all other prices are to be measured. The goodor input whose price is thus chosen is called the 'numeraire.' In our computa­tions, we have selected capital services as the numeraire. 7 Therefore, all pricesare measured relati ve to the rental of capital. One may think of the rental oncapital as being unity for simplicity (since it is perfectly arbitrary). In the ensu­ing discussion, all prices are expressed relative to the numeraire. They ofcourse bear the same relation to each other as absolute prices do.

To see how the general equilibrium solution is computed, suppose we

7. The reason for doing this is to provide a convenient way to measure capital services asoutlined in the next chapter.

20

begin with an arbitrary wage rate (i .e., wage-rental ratio).8 We shall use thiswage rate to deduce what the aggregate demand for labour would be if all mar­kets cleared and the balance of payments were satisfied. If the aggregate de­mand for labour so determined were not equal to the given supply available,then this could not be the equilibrium wage rate. The wage rate would have tobe iteratively changed until the equilibrium were established.

From the given wage rate, the unit labour and unit capital requirementsmay be computed from the production function. In addition, from the input­lWtput coefficients, we know the unit output requirements of intermediate in­puts. From all these given unit input requirements we may deduce the price of aunit of output from knowledge of the wage-rental ratio alone. (Mathematically,to do this requires solving a set of n unit pricing equations in terms of n + Ivariables, the prices and the wage-rental rate, for the n prices.) In our actualcomputations there are two additional problems to worry about - taxes andother value-added items. We must include in the price determination process alltaxes paid by producers on their inputs. This is a straightforward matter. In ad­dition, we must include the input-output coefficient for other value-added in theprice determination equations. Having done this, the prices received by produc­ers ('supply' prices) are determined by the unit input requirements for any arbit­rary initial wage rate chosen. They differ from the prices paid by final users byany commodity taxes imposed on the latter (e.g. retail sales taxes, etc.).

Next, an expression for total final demand expenditures is derived. Totalexpenditures equals total income which may originate from any of the follow­ing sources - payments to labour and capital, tariff revenues, tax revenues,other value-added, and net (financial) capital inflows from foreign sources. Thetotal available labour and capital is known; it is the resource constraint theeconomy is working under. From the given wage and rental rates the paymentsto labour and capital may be determined. Net capital inflows from foreignsources are assumed to be given and not to change as the result of any of thechanges we consider. The tariff and tax revenues and other value added are de­pendent upon the corresponding rates (which are known) and the transaction towhich they apply, which must be determined. For example, tariff revenuesequal the tariff rates times the value of imports of each type; final demand taxrevenues equal the tax rates times the values of final demand; taxes collected onintermediate demand equal the tax rates times the various categories of inter­mediate use; and corporate tax collections equal the corporate tax rates times

8. The term wage rate in the text refers to the economy-wide average wage rate. In fact, differentindustries pay different average wage rates. There is no difficulty in allowing wage rates todiffer over different industries. What we assume is that the average wage in each industrybears a constant ratio to the average wage in the economy as a whole. This is taken to reflectall non-pecuniary differences in working conditions in different industries.

21

capital returns in each sector. 9 Therefore, we n.eed expres~ions for imports:final demands, intermediate demands, and capital usages In each Industry Inorder to complete the equation for total income.

Intermediate demands and capital usages are both directly related to totalindustry outputs since, for eac.h industry, we know the unit req~ireme.nts of allintermediate inputs (from the mput-output coefficients) and capital (given. thewage-rental rate). If these unit input requirements are multiplied by total mdus­try outputs, we obtain total intermediate inputs and capital demands. Further­more, by the market clearing relations for all commodities and the input-outputrelationship we shoW that total outputs depend linearly on all final demands plusexports minus imports. This relationship is a standard one used in input-outputanalysis and, as shown in appendix I, is derived by solving n simultaneous linearequations for the n industry outputs in terms'offinal demands plus exports lessimports in each industry. Therefore, the tax and tariff revenues depend ultimatelyupon final demands, exports, and imports. .

Final demands for any industry's output depend upon total mcome and theprice for that industry. The prices are all .known once a wage ra~e has ~een

stipulated. Final demands can thus be wntten as a (lmear) function of mcomes.Exports and imports are slightly more cumbersome to calculate. Exports

sold depend upon domestic prices and the rate of exchange as outlined in a~

earlier section of this chapter. Similarly, imports depend upon the world pncewhich may be converted, using the exchange rate, into domestic producerprices plus the tariff. Since we know the tariff rates and we know the producerprice (given the wage rate) imports and exports depend upon the exchange rate.However, the exchange rate must be that which just satisfies the balance ofpayments. Our procedure is therefore as follows. Given the wage rate, andhence all domestic prices, we iteratively compute the exchange rate which justsatisfies the balance of payments (e.g. an arbitrary exchange rate is chosen. Ifthis yields a balance of payments deficit as exports plus capital inflows fallshort of imports the price of foreign exchange is increased, and vice versa. Thisprocedure is repeated until the balance of payments comes close enough toclearing.). From this equilibrium exchange rate and the domestic prices andtariffs the quantities of all imports and exports are calculated from the importsupply and export demand functions.

At this point we have an expression for total income involving severalknown values but including some terms involving final demands which, as

9. Notice that we are neglecting the personal income tax. The reason for Ihis is Ihal we assumethat the average personal income tax rale is identical for all industries. Therefore, it has nodistorting effects on the economy and is of no consequence for resource allocauon In ourmodel. If information were available which suggested that personal tax rates varied overindustries, we could introduce it into the model in an analogous way to the corporate tax.

Unfortunately, such data are not available.

22

explained above, are linear functions of total income. Therefore, the entire ex­pression may be solved for total income.

Once total income is known, all final demands can be calculated from thefinal demand functions. From the final demands, exports and imports, togetherwith total outputs by industry may be calculated from the market clearing con­ditions as explained above. Using total industry outputs, the amount of labourdemanded in each industry may be calculated using the unit labour require-

ents.The sum of these labour demands by industry would then represent the

aggregate demand for labour by all industries when all commodity marketshave cleared and the wage rate is the one which was originally arbitrarily cho­sen. If that labour demand does not equal the aggregate amount of labour avail­able to the economy given 'exogenously' (from outside the model), the wagerate chosen could not have been the equilibrium one. If aggregate demand ex­ceeds aggregate supply, the wage rate must be increased and the entire compu­tation repeated. By the same token, with excess supply, the wage must be re­duced. This is repeated iteratively until aggregate demand for labour approxi­mately equals aggregate supply. At that point, a general equilibrium will havebeen reached. 10 From our computations we will know the general equilibriumvalues for all outputs, inputs, prices, and the exchange rate.

The Experiments Undertaken

The initial exogenous data used to compute the control general equilibrium arechosen so that the solution yields the same factor allocations, outputs, and rela­tive prices as in the actual Canadian economy of 1966 (the latest year for whichinput-output data are available). The choice of data is described in detail in ap­pendix II. The shock general equilibria arc obtained by changing either some ofthe exogenous data or the structure of the economy and recomputing the generalequilibrium solution.

Those experiments which involve changing the exogenous data includeremoving the various sorts of taxes and tariffs as well as changing the tariffstructure. The removal of a distortion caused by tax or tariff will cause re­sources to reallocate and industry outputs to change in such a way as to indicatehow that government-induced distortion affects various industries. Thus, oneought to be able to suggest whether various tax and tariff measures discriminateagainst, favour, or are neutral towards the mining industry after all inter­relationships in the economy have been taken into consideration. Changes inthe tariff structure are of interest since they may be utilized to encourage further

10. When the wage rate has been found which clears the labour market, the capital market mustalso clear. This is known as Walras' Law and is well known to economists. For this particularmodel it is proven in appendix I.

23

processing of minerals in Canada. The effects of such encouragement will beconsidered.

One other change of exogenous variable which may be of considerable in­terest is the effect of changing the supply of capital. We might like to knowwhere additional supplies of capital would be allocated as they become availa­ble to the Canadian economy. Similar experiments might be performed for ad­ditions to the labour supply.

The shock general equilibria which are of the most interest to us, however,are those which involve structural changes in the Canadian economy withoutany data changes. The structural change involved is the 'closing-down' of a~industry. In our model, if any industry is removed, all requirements for that In­

dustry's output in final demand and intermediate use in other industries mustcome from imports. In effect, the good becomes a 'non-competing' import. Theinput-output matrix is reduced by one row and one column and the inputs of thenon-competing import become a row vector of inputs treated in the same wayas primary inputs. The technical amendments to the above model are fairlystraightforward.

The removal of an industry from the model is a conceptual experimentwhose object is to find out how that industry affects resource allocation in theeconomy as a whole. For example, which other industries are most dependenton this industry via backward linkages? These dependent industries will suffer afall in output when this industry is absent. On the other hand, some industrieswill have been hampered by the existence of the industry because the latter hasdrawn scarce resources which would otherwise have been used by the former.These industries will find their output increased when the industry in question isabsent. Also, we will find out the impact that the industry had on relative prices(especially factor prices), on the exchange rate, and on the volume of importsand exports. All of these things are of interest in assessing the impact of themining industry on the Canadian economy.

Finally, the general equilibrium model being used suggests a method formeasuring the changes in well-being (or welfare or utility) in a shock generalequilibrium compared with the control general equilibrium. The well-being ofthe people in the economy is ultimately dependent upon the quantities of thevarious goods available for final use. The shock equilibrium will involve a dif­ferent bundle of final goods than will the control equilibrium because income,as well as relative prices, will have changed. We will derive a method formeasuring the change in well-being due to the change in final demands.

Intuitively, the measure might be derived as follows. In the shock equilib­rium the final demands of various goods will have changed by varying propor­tions. At the same time, the importance of various goods in the consumers'budget varies. Suppose we measure the importance of a good in the budget bythe proportion of income devoted to it. We have assumed in the demand func-

24

tions described earlier that these proportions are constant. We postulate that theproportionate change in 'utility' in the economy is a weighted average of theproportionate change in final demands for goods where the weights are theshares of total final expenditure allocated to each good.

Analytically, this change in utility or welfare has a sound theoretical base.The derivation of it is relegated to appendix I. In all our experiments we com­pute the' welfare' changes from shocking the system.

..The Choice of Data

The basic data used in this study are the Canadian input-output tables for 1966.We have obtained tables from the Structural Analysis Division of StatisticsCanada using the fifty-six industry aggregation shown in table I. This particularaggregation was chosen in order to give as much detail as possible to the min­ing industry and to those closely related to mining (e.g. processing, transporta­tion). Other industries are aggregated more highly because of the computationalcosts involved in solving a more complex general equilibrium system.

The input-output tables themselves include the volumes of all productsproduced by each industry which flows into other industries as intermediate in­puts and to final demand, the payments by each industry for wages and salaries,surplus, and other value-added, and the flows of exports and imports of eachindustry's products. From these data we can compute input-output coefficientsfor all primary and intermediate inputs and the share of the final demand ex­penditure which is devoted to each industry's output.

Statistics Canada has also made available to us data on employment and ontaxes and tariffs. The employment data give the quantity of labour (in man­years) employed by each industry in 1966. These data are useful to us sincethey enable us to calculate the average wage in each industry from the totalwage payments. Wage rates will differ over industries and we assume that theproportional differences amongst industries are fixed. It may be difficult to in­terpret these differences within a framework which assumes that labour ishomogeneous and mobile. Though a higher wage payment in one industryrather than another may be ascribed to, say, the differing working conditions ofthe two, in the real world, of course, these different wage rates are also due todifferences in average skills in different industries. Treating labour ashomogeneous and mobile, as our model and the data force us to do, does notcapture these skill differences perfectly. The employment data also give us a fi­gure for the economy-wide total labour supply which acts as a constraint in thesystem as explained earlier. Corresponding figures for capital employment byindustry and for the entire economy come from the net-of-tax surplus paymentsin the input-output table. This actually represents the dollar payment for capi-

25

oZ

oZ

26

tal servi<: 'S ov 'I th Y ':II'. The juslil'i<:alion for usin· it as th' measure or capitalservices in physical terms is given in appendix II.

The data on tax and tariff payments provided by Statistics Canada were thetotal commodity taxes ll paid on all transactions and the total tariffs paid on allimport purchases by industry. These are converted into rates by dividing thepayment by the volume of the appropriate transaction. We also obtained taxespaid out of surplus by corporations. These include both federal and provincialcorporate income taxes as well as provincial mining and logging taxes. Theywere obtained from Corporate Financial Statistics /966 and were convertedinto 'capital tax rates' by dividing such tax payments by surplus in each indus­try. These tax rates are all reported in detail in appendix II.

The data obtained for 1966 describe the flows to which the control generalequilibrium must conform. As mentioned above, the general equilibrium calcu­lation is designed so as to reproduce exactly the observed 1966 Canadianeconomy. In order that it does so, the parameters of final demand functions,production functions, and import supply and export demand functions must allbe chosen in an appropriate way. The choice of these parameters so that the useof the functions in the control general equilibrium calculation will exactly repli­cate the real world is a technical matter and is relegated to appendix II, TheChoice and Sources of Data. In addition to explaining the choice of parameters,this appendix presents all the data used in the study.

II. Commodity taxes include federal manufacturing sales lax, federal excise tax, and provincialexcise tax. Provincial relail sales taxes are excluded for lack of data but they are fairly uniform

and not likely to introduce very large distortions.

27

4. Measuring the Impact of the Mining Industries

Introduction

The primary purpose of this study is to compute estimates of the effects of themining industries on resource allocation in the Canadian economy, both for in­dividual mining industries and for selected groupings of these industries. Asmentioned earlier, the methodology used to approach this problem considershow the resources available to the economy would have been utilized had themining industries not existed. The general equilibrium model outlined in chap­ter 3 is shocked by removing the mining industry and computing a new generalequilibrium which just uses up the resources released by the absent industry (aswell as by any other industry whose output consequently declines).

In the first experiments, it is assumed that all the resources (both labourand capital) that are now used in the mining industries would have been availa­ble for use elsewhere had the industries not existed. It may be argued that thisis not entirely realistic, particularly in the case of the mining industries; manyof them were developed by foreign capital which might not have been forth­coming if the mining industries did not exist. We obviously have no way ofknowing the extent to which the economy would have had less capital resourcesin the absence of the mining industries. We have therefore experimented withtwo further cases: one at the other extreme, where if a mining industry is ab­sent, its capital is totally eliminated (only its labour is released for useelsewhere), the other where half the capital is retained. The results of these ex­periments are reported later in this chapter. The results given first, and in thegreatest detail, are for the case in which all capital released could have been

used elsewhere.

Effects to be Observed

Before discussing the results of the experiments, it is worth presenting an over­view of the main sorts of effects to be observed. The shock solutions will differfrom the control solution in the way primary resources (labour and capital) areallocated, the outputs and uses of each industry's product, the relative prices ofall goods and factors, the exchange rate, and the welfare index. When an indus-

28

try is absent, it releases labour and capital to the rest of the economy, and it nolonger provides any exports. The former has its primary effect in the wage­rental ratio, and the latter on the exchange rate. Whether the wage-rental ratiorises or falls depends upon the relative amounts of capital and labour releasedby the absent industry. If the industry is relatively capital-intensive so that theratio of capital to labour it employs exceeds the national average, capita] willbecome relatively less scarce and labour more scarce in the rest of theeconomy. The wage-rental ratio will have to rise to induce employment of allthe labour and capita] released. We known from chapter 3 that relative prices ofthe products of all industries depend ultimately upon the wage-rental ratio. Ifthe wage-rental ratio rises, the relative price will rise for industries which arelabour-intensive or which use, as intermediate inputs, products of industrieswhich are labour-intensive. Since final demand depends upon relative prices,the final demands for these products will fall and for others will rise, causing achange in total outputs in all industries. Total outputs will also be affected byboth the initial change in final demands and the changes in intermediate de­mands working via the input-output relationships. In the end, the outputs ofsome industries will rise and others will fall. In the example given here, outputsshould tend to rise for other capital-intensive industries assisted by the rise inthe wage-rental ratio. At the same time, outputs will fall for industries whichpreviously sold a significant portion of their outputs to the one which is nowabsent (i.e., those that the industry supported via backward linkages).

The above events can be altered somewhat by changes brought about bymovements in the price of foreign exchange. If the industry in question is anexport industry, its absence will tend to increase the price of foreign currency inorder to re-establish a balance of payments equilibrium. The movement of thewage-rental ratio may make this effect larger or smaller depending on thecapital-intensity of exporting and import-competing industries. If these arelabour-intensive, the rise in the wage-rental ratio will increase their relativeprices and will cause a further reduction in exports and rise in import substi­tutes. The price of foreign exchange will rise further than it otherwise would.On the other hand, if the exporting and import-competing industries tended to·be capital-intensive, tradeables would be favoured and the price of foreign ex­change would not rise as much as otherwise (or it may even fall).

A rise in the price of foreign exchange per se will favour exporting indus­tries (by making their prices appear lower to foreigners) and import-competingindustries (by making imports more expensive for domestic residents). Com­bined with the above influences, they will be more beneficially affected themore capital-intensive they are, the more capital-intensive are their inputs, andthe less they are used in industries whose outputs decline. These various influ­ences will become important in trying to explain the results achieved below.

Finally, a 'true welfare index' is computed for each shock general equilib-

29

rium solution. This welfare index, as explained in chapter 3, is a quantity indexdesigned to give a monetary measure to the change in 'utility' as a result of thechange in the bundle of final goods purchased when the system is shocked. Thewelfare index is constructed as the ratio of utility achieved in the shock equilib­rium to that in the control equilibrium. In a perfectly competitive economy withno price distortions of any kind, we would always observe a fall in utility whenan industry is eliminated. The true welfare index would be less than unity.However, in our general equilibrium model, several distortions exist. The capi­tal tax makes the rates of return to capital different in different industries thusdistorting the allocation of capital. Those with high capital tax rates will likelyhave less capital than at the optimum and vice versa. The commodity taxesdrive a wedge between the price purchasers pay and the price sellers receive onpurchases of products for final and intermediate use. Once again, transactionswith a high rate of tax will be discouraged compared with those having lowrates of tax and the allocation of resources will be distorted. Similarly, thetariffs impose a wedge between the price producers receive and the price paidto foreigners for the purchase of the same product. Thus, import-competing in­dustries tend to have more resources than they might otherwise. Finally, in ourmodel wage rates differ over different industries as they do in the real world. Atequilibrium, the productivity of workers will differ over industries because ofthe different wage rates. It would profit the economy to move workers fromlow productivity (low wage) industries to high productivity (hig!l wage) indus­tries but because of the imposed wage distortions the market will not do this.Thus, too few resources are allocated to high wage industries. I

In the absence of an industry, resources are reallocated elsewhere, and, inparticular, some resources may be induced to shift into industries previouslydiscriminated against by the distortions. This type of shift of resources partiallycounters the welfare-reducing distortion and thus tends to increase welfare.

2

Therefore, the welfare-reducing effects of the absence of an industry may bepartially or even wholly offset by the induced reallocation of resources. 3

I. It may be maintained that the wage differentials are due to non-pecuniary disadvantages in thehigh wage industries. The high wage is then a payment for the opportunity cost involved inworking in unattractive jobs. To the extent that this is true, the wage differentials do not reflectdistortions but proper prices reflecting true costs. Our welfare index reflects only utilitychanges due to changes in the goods consumed. It does not include any changes in welfare dueto labour reallocating amongst industries with different wage rates. This ought to be borne In

mind in interpreting the changes in welfare measured below.2. The best analytical explanation of this process may be found in A.C. Harberger, 'Three Basic

Postulates for Applied Welfare Economics: An Interpretive Essay', Journalo/EconomicLiterature, vol. IX, no. 3, 1971 , pp. 785-97. It is an application of what has been known in theliterature as the theory of second best associated with the seminal article of R.G. Lipsey andK. Lancaster, 'The General Theory of Second Best", RevielV 0/Economic Studies, vol. 24,

1956, pp. I 1-32.3. Of course welfare could be raised even further by eliminating the distortions first hand.

30

The main results reported in this chapter are the changes in wage-rentalratio, exchange rate, welfare index, and outputs by industry which arise fromthe absence of various mining industries. Each mining industry is treated sepa­rately, and, in addition, we experiment with all metal mining industries, allnon-metal mining industries, and all mining industries. The results obtainedfrom the computations depend upon the parameter values used in the generalequilibrium model. Those reported here use the following parameter values.The production functions are Cobb-Douglas in labour and capital and fixedcoefficient in all intermediate inputs. The elasticity of world demand for ex­ports is unity for each industry and that of world supply of imports is ten foreach industry. That is, Canada is assumed to have more influence over exportprices than import prices. The reason for this is that as a percentage of worldmarkets, exports loom much larger than do imports. All other parameter valuescome from actual data on the Canadian economy as documented in input-outputdata obtained from Statistics Canada.

We have done some sensitivity analysis on the production functions andthe world trade elasticities. Labour and capital have been assumed to be com­bined using CES production functions estimated by Tsurumi with fixed inter­mediate coefficients. 4 And variable intermediate inputs have been allowedusing the Cobb-Douglas form. World export and import elasticities of I, 10,and 25 have been used in various combinations. We have found that, exceptwhen trade elasticities become very large, the qualitative results do not changemuch. When trade elasticities are very large, industries tend to be forced out ofbusiness when exogenous changes are to be made. 5

Mining Industries Absent: Capital Retained

THE WAGE-RENTAL RATIO AND RELATIVE PRICES

We begin by discussing the effects of the absence of the various mining indus­tries on the wage-rental ratio and hence on relative prices. Table 2 shows theproportionate change in the wage-rental ratio, the exchange rate, and the wel­fare index resulting from the absence of the mining industries.

As this table indicates, the wage-rental ratio rises when mining industriesare absent in all cases but four - Gold, Coal, Gypsum, and Lime. In some

4. See H. Tsurumi, 'Nonlinear Two-Stage Least Squares Estimation of CES Production FunctionsApplied to the Canadian Manufacturing Industries, 1926-39, 1946-47', RevielV o/Economicsand Statistics, vol. 52, no. 2, 1970, pp. 200-207.

5. This is to be expected. From international trade theory, we know that a small open economy(defined as one facing fixed world prices or infinite export and import elasticities) with moregoods than factors is overdetermined. In general, only as many goods as factors will beproduced. This result is originally due to P.A. Samuelson, 'Price of Goods and Factors inGeneral Equilibrium', Review 0/Economic Studies, vol. 21, 1953-54, pp. 1-20. Similar, butless strong, forces are at work when elasticities are large but not infinite.

31

Table 2

Selected Effects ofAbsence ofthe Mining Industries: Capital Retained(percent changes)

Wage-Rental Exchange WelfareIndustry Absent Ratio Rate Index

4. Base Metal and Other MetalMines 2.43 2.48 0.04

5. Uranium Mines 0.13 0.12 0.016. Iron Mines 0.29 0.57 -0.067. Gold Mines -0.15 0.01 0.028. Coal Mines -0.11 0.01 0.0310. Asbestos Mines 0.27 0.32 -0.01II. Gypsum Mines 0.00 0.01 0.0012. Salt Mines 0.02 0.03 0.0013. Other Non-Metal Mines 0.19 0.21 -0.0114. Quarries and Sandpits 0.05 0.13 -0.0136. Cement 0.38 0.37 0.0237. Lime 0.00 0.01 0.00

Metal mining industries 2.58 3.43 0.03Non-metal mining industries 0.55 0.72 -0.04All mining industries 3.65 4.93 -0.04

cases, the reason for this is not hard to detect. The economy-wide capital­labour ratio is 2.82 in the control solution. In Gold, Coal, and Lime, thecapital-labour ratio in the control general equilibrium is less than that for the en­tire economy. Therefore, by the mechanism described above, the wage-rentalratio tends to fall since labour becomes relatively less scarce. The case of Gyp­sum is more difficult. Its capital-labour ratio is 4.75, well above the nationalaverage, so one would expect its absence to cause a rise in the wage-rentalratio. The fact that the wage-rental ratio falls slightly may arise because the re­duction in gypsum output causes a reduction in labour-intensive outputs via theinput-output relationships.

The industry absence which causes the largest increase in the wage-rentalratio is Base Metals. It is by far the largest of the mining industries, althoughnot the most capital intensive. The next greatest effect on the wage-rental ratiois due to Cement which is, surprisingly, a relatively small industry. It is, how­ever, the most capital-intensive. Overall, metals have a much stronger effect onthe wage-rental ratio than do non-metals and account for the bulk of the effectof all mining industries. The increase in the wage-rental ratio of 3.65 percent issurprisingly small despite the apparent capital-intensity of the industries. Appa­rently, the inter-industry relationships tend to buffer strong tendencies for thewage-rental ratio to rise when capital-intensive industries are absent.

32

It is instructive to compare the mining industries with Petroleum and GasWells. The latter is only slightly larger than Base Metals in volume of total out­put yet its absence causes the wage-rental ratio to rise by 4.45 percent, which issignificantly greater. This is partly accounted for by the higher capital-labourratio in Petroleum and Gas Wells. On the other hand, the absence of Agricul­ture, Forestry. and Fishing, which are also quite capital-intensive industries,causes the wage-rental ratio to rise by 3.41 percent. There are many other in­fluences at work besides the relative amounts of capital and labour released.

Relative prices depend ultimately on the wage-rental ratio. The resultsconfirm that relative prices tend to rise more in more labour-intensive com­modities when the wage-rental ratio rises and in capital-intensive commoditieswhen the wage-rental ratio falls. These results are not recorded here.

THE EXCHANGE RATE AND FOREIGN TRADE

In all cases the price of foreign exchange rises (that is, the Canadian dollar de­clines) when the mining industries are absent. Once again, Base Metals accountfor a substantial part of the rise. Such an outcome is not unexpected, given thelarge export content of most of these industries. In addition, the high wage­rental ratio induced by the absence of most of the mining industries adds to thiseffect on the exchange rate to the extent that exports and import substitutes arerelatively labour-intensive. One indication that this latter may be the case is theobservation that the smallest increase in the price of foreign exchange occurs inthose industries in which the wage-rental ratio fell - Gold, Coal Gypsum. andLime. In this case the lower wage-rental ratio discriminates against the produc­tion of traded goods in Canada.

Once again, this may be compared with the elimination of other non­mining industries. For example, the absence of Petroleum and Gas Wellscauses the price of foreign exchange to rise by about 3.9 percent (more than allthe metal industries combined). That of Agriculture. Forestry, and Fishingcauses the price of foreign exchange to rise even further, 4.4 percent.

The pattern of foreign trade changes is predictable from the change in ex­change rate. The rise in the price of foreign exchange in all cases causes ex­ports of all industries to rise and imports of all industries to fall, except forthose of the industry in question.

INDUSTRY OUTPUTS

The most interesting results are those obtained for the changes in industry out­puts in the rest of the economy when mining industries are taken out of themodel. The absence of an industry releases resources which may be usedelsewhere and also reduces the demand for products of other industries used asintermediate inputs in that industry. Thus there are forces at work tending to in­crease the output of some industries and reduce that of others. An interesting

33

LJr~ '-,,.. Lrcharacteristic of the results obtained is the extent to which the various mining ~industries cause a similar pattern of industries to expand and contract. Each of

Table 3

the various industries tested will be discussed in turn beginning with all mining Industries' Response to Absence ofall Mining Industries: Capital Retained

industries together and working through to each individual mining industry. (Absolute Changes)

All Mining Industries Absent Labour Capital Final TotalDemand Demand Demand Output Exports Imports

The effects on resource allocation, prices, final demands, exports, and imports Industry (Man- ($ ($ ($ Producer ($ ($

from the absence of all mining industries are reproduced in full detail in tables Number Years) Thousand) Thousand) Thousand) Prices Thousand) Thousand)

3 and 4 which show absolute changes and percentage changes in these items re- I 1 I 1368. 36702. 5031. 208431. 0.0188 37313. -87975.r ~!

spectively. Our main interest lies in changes in industry output levels and we 2 1875. 5773. -256. %871. 0.0287 968. -4482.

discuss in tum those industries which benefit from the absence of mining and 3 419. 1676. -17. \ 12941. 0.0272 1193. -6314.

those which are hurt. 4 -35585. -433780. -309. -972643. 0.0493 -220206. 788454.

As table 3 indicates, the outputs of several industries rise by more than5 -2050. -19819. -345. -55012. 0.0493 -28192. 27251.

$100 million when all mining is absent. They include Agriculture (I), Pet- 6 -10883. -81642. -469. -389506. 0.0493 -294535. 106315.

roleum and Gas Wells (9), Food and Feed (16), Leather, Textiles, and Clo- 7 -11464. -8911. -104. -119443. 0.0493 -93025. 26655.

thing (20), Pulp and Paper (23), Iron and Steel (25), Smelting and Refining8 -5857. -8228. -979. -53025. 0.0493 -14494. 37351.9 1624. 94997. 871. 187326. 0.0124 16403. -131369.

(26), Metal Fabricating (30), Machinery (31), Motor Vehicles (32), Other 10 -6509. -54616. -69. -172300. 0.0493 -163105. 9616.Electrical Products (35), Chemicals (41) and Miscellaneous Manufacturing

~I -590. -2803. 14. -9706. 0.0493 -8817. -44.(42). The change is especially large in Motor Vehicles ($516 million), Machin- 12 -1257. -6323. -263. -23996. 0.0493 -2597. 21859.ery ($337 million), Metal Fabricating ($249 million), and Leather, Textiles and 13 -3538. -38079 -301. -102900. 0.0493 -49183. 56330.Clothing ($248 million). These are the industries to which most resources 14 -6333. -27473 -330 -124600. 0.0493 -6172. 116365.

would have been attracted from those released by mining. Conversely, one 15 -2403. -5084. -409. -43691. 0.0281 16. -923.

could say that these are the industries which are most adversely affected by the 16 3180. 24053. 6148. 191476. 0.0229 13664. -108809.existence of the mining industries. They share several characteristics which ac- 17 387. 9609. 2657. 31824. 00193 4031. -24040.

count for this. Each industry is one or more of the following: highly capital- 18 -39 1735. 1201. 7294. 0.0204 1023. -3361.

intensive, a producer of a tradeable commodity (export or import substitute), or 19 2006. 8186. -151. 50418. 0.0253 574. -26144.

a user of inputs which display the previous two characteristics. Thus, for exam-20 15552. 23135. -8926. 247556. 0.0287 2485. -138972

pie, Motor Vehicles exhibits all three characteristics, which accounts for the 21 1739. 6854. -377 44989 0.0286 11693. -18943.

magnitude of its output change. 22 373. 2410. -2179 10789. 0.0286 238. -9030.

We have already explained why these three characteristics are important in23 2340. 27511. -30. 120517. 0.0246 38285. -36630.24 1805. 7013. -1450. 38046. 0.0283 362. -34289.

determining the influence on an industry's output. Becaus~ the absence of the 25 7019. 41982. -135. 216195. 0.0272 4599. -72626.mining industries raises the wage-rental ratio, capital-intensive industries will

26 1644. 9680. -529. 130497. 0.0386 11666. -27683.be favoured relative to labour-intensive ones. And any industry which uses 27 710. 5. -9. 24838. 0.0354 749. -7589.these products as inputs will be favoured. Similarly, since the price of foreign 28 303. 1817. d. 25693. 0.0339 1047. -2885.exchange rises, export and import-substitute industries are favoured. There are 29 381. 1895 -25. 16171. 0.0289 753. -5068.

as well likely to be many other indirect influences at work operating via the 30 10758. 32598. -2106. 249449. 0.0277 3918. -138858.

input-output relationships which we are unable to discern clearly. 31 13743. 45993. -3895. .17480. 0.0266 8245. -304206.It is interesting to note that apart from Agriculture (I) and Petroleum and 32 12070. 36693. -6505.1 515620. 0.0274 20094. -302773.

Gas Wells (9) all of the strongly affected industries are in the manufacturing 33 3936. 6973. -5054. 77686. 0.0301 5273. -67357.

sector. It would seem that to some extent the mining and manufa.s:.turing sectors 34 1549. 2580. -1901. 37180. 0.0290 551. -28760.

compete strongly for the nation's resources. In fact, the output of all manufac-35 7963. 23133. -3641. 175220. 0.0282 4993. -112874.

tunng-industries rises~mining is absent. Manu actunng industries which

3435

l 90 I

characteristic of the results obtained is the extent to which the various mining Table 3industries cause a similar pattern of industries to expand and contract. Each of

IndusTries' Response To Absence ofa/l Mining IndusTries: CapiTal Retainedthe various industries tested will be discussed in turn beginning with all mining (AbsoluTe Changes)industries together and working through to each individual mining industry.

Labour Capilal Final TotalAll Mining IndusTries Absent Demand Demand Demand Outpul Exporls Imports

The effects on resource allocation, prices, final demands, exports, and importsIndustry (Man- ($ ($ ($ Producer ($ ($Number Years) Thousand) Thousand) Thow,and) Prices Thousand) Thousand)

from the absence of all mining industries are reproduced in full detail in tables I3 and 4 which show absolute changes and percentage changes in these items re- f I I I 1368. 36702. 5031. 208431. 0.0188 37313. -87975....spectively. Our main interest lies in changes in industry output levels and we 2 1875. 5773. -256. 36871. 0.0287 968. -4482.

3 419. 1676. -17. 12941. 0.0272 1193. -6314.discuss in turn those industries which benefit from the absence of mining and 4 -35585. -433780. -309. ~?72643. 0.0493 -220206. 788454.those which are hurt. 5 -2050. -19819. -345. -55012. 0.0493 ~28192. 27251.

As table 3 indicates, the outputs of several industries rise by more than6 -10883. -81642. -469. )-389506. 0.0493 -294535. 106315.$100 million when all mining is absent. They include AgriculTure (I), PeT- 7 -11464. -8911. -104. 119443. 0.0493 -93025. 26655.

roLeum and Gas Wells (9), Food and Feed (16), Leather, TextiLes, and CLo- 8 -5857. -8228. -979. -53025. 0.0493 -14494. 37351.thing (20), PuLp and Paper (23), Iron and STeel (25), SmeLting and Refining 9 1624. 94997. 871. 187326. 0.0124 16403. -131369.(26), MeTal Fabricating (30), Machinery (31), MoTor Vehicles (32), OTher 10 -6509. -54616. -69. /-172300 0.0493 -163105. 9616.

EleCTrical ProducTs (35), Chemicals (41) and Miscellaneous ManufaCTuring II -590. -2803. 14. -9706. 0.0493 -8817. -44.(42). The change is especially large in MoTor Vehicles ($516 million), Machin- 12 -1257. -6323. -263. -23996. 0.0493 -2597. 21859.ery ($337 million), MeTaL FabricaTing ($249 million), and LeaTher, TextiLes and 13 -3538. -38079. -301. -102900. 0.0493 -49183. 56330.

CLOThing ($248 million). These are the industries to which most resources 14 -6333. -27473. -330. -124600. 0.0493 -6172. 116365.

would have been attracted from those released by mining. Conversely, one15 -2403. -5m;4. -409. -43691. 0.0281 16. ~923.

could say that these are the industries which are most adversely affected by the 16 3180. 24053. 6148. 191476. 0.0229 13664. -108809.

existence of the mining industries. They share several characteristics which ac- 17 387. 9609. 2657. 31824. 0.0193 4031. -24040.18 -39. 1735. 1201. 7294. 0.0204 1023. -3361.count for this. Each industry is one or more of the following: highly capital- 19 2006. 8186. -151. 50418. 0.0253 574. -26144.

intensive, a producer of a tradeable commodity (export or import substitute), or 20 15552. 23135. -8926. 247556. 0.0287 2485. -138972.a user of inputs which display the previous two characteristics. Thus, for exam-

21 1739. 6854. -377 44989. 0.0286 11693. -18943.pIe, MoTor Vehicles exhibits all three characteristics, which accounts for the 22 373. 2410. -2179 10789 0.0286 238. -9030.magnitude of its output change. 23 2340. 27511. -30. 120517. 0.0246 38285. -36630.

We have already explained why these three characteristics are important in 24 1805. 7013. -1450. 38046. 0.0283 362. -34289.determining the influence on an industry's output. Because the absence of the 25 7019. 41982. -135. 216195. 0.0272 4599. -72626.

mining industries raises the wage-rental ratio, capital-intensive industries will 26 1644. 9680. -529. 130497. 0.0386 11666. -27683.be favoured relative to labour-intensive ones. And any industry which uses 27 710. 5. -9. 24838. 0.0354 749. -7589.these products as inputs will be favoured. Similarly, since the price of foreign 28 303. 1817. 126 25693. 0.0339 1047. -2885.

exchange rises, export and import-substitute industries are favoured. There are 29 381. 1895. -25. 16171. 0.0289 753. -5068.

as well likely to be many other indirect influences at work operating via the30 10758. 32598. -2106. 249449. 0.0277 3918. -138858.

input-output relationships which we are unable to discern clearly. 31 13743. 45993. -3895. 3:37480. 0.0266 8245. -304206.

It is interesting to note that apart from AgriculTure (I) and PeTroleul1I alld 32 12070. 36693. -6505. (515620. 0.0274 20094. -302773.

Gas Wells (9) all of the strongly affected industries are in the manufacturing33 3936. 6973. -5054. 776XC,. 0.0301 5273. -67357.34 1549. 2580. -1901. 37180. 0.0290 551. 28760.

sector. It would seem that to some extent the mining and manufacturing sectors 35 7%3. 23133. 3641. 175220. 0.0282 4993. -112874.compete strongly for the nation's resources. In fact, the output of all manufac-turing industries rises when mining is absent. Manufacturing indu tries which

34

~le 3 (continued)Table 4

Relative Response to Absence ofAll Mining Industries: Capital Retained

Labour Capital Final(Percent Changes)

Demand Demand Dcmand Exports Imports Industry Labour Capital Final ProduccrIndustry (Man- ($ ($ Producer ($ ($ Number Demand Demand Demand Prices Exports ImportsNumber Years) Thousand) Thousand) Prices Thousand) Thousand)

I 1.48 5.51 0.55 4.39 1.88 2.99 -25.5236 -3992. ~56688. -330. 0.0493 -6983. 157251. 2 2.63 6.71 -0.42 3.38 2.87 2.00 -17.9537 -876. -653. -9. 0.0493 -1948. 11496. 3 5.47 9.66 "-0.28 6.71 2.72 214 -19.1138 2349. 1320 I. -471. 0.0291 1082. -39618. 4 -100.00 -100.00 -2.37 -100.00 4.93 -100.00 1399.2339 243. 4268. 6853. 0.0151 633. -57858. 5 -100.00 -100.00 -2.37 -100.00 4.93 -100.00 61948.7740 108. 899. I. 0.0239 40. -3084.

6 -100.00 -100.00 -2.37 -10000 4.93 -100.00 184.9741 4483. 33031. 445. 185149. 0.0238 7871. -119614. 7 -100.00 -100.00 -2.37 -100.00 4.93 -100.00 3498.8442 8297. 19599. -2193. 144760. 0.0273 2594. -114699. 8 -100.00 -100.00 -2.37 -100.00 4.93 -100.00 21.6843 -5317 15466. -53476. -52229. I0.0301 o. o. 9 12.90 17.40 1.19 16.71 1.24 3.64 -30.0744 340. 3837. -57. 11076. 0.0278 3819. -13741. 10 -100.00 -100.00 -2.37 -100.00 4.93 -100.00 361.0245 -1532. 7675. -237. -1545.

(''''2712. -371.

_I L -100.00 -100.00 -2.37 -100.00 4.93 -100.00 -5.1946 -900. 5272. -49. 3625. 0.0249 O. o. 12 -100.00 -100.00 -2.37 -100.00 4.93 -100.00 605.6447 122. 15897. 1130. 23914. 0.0062 3747. -13703. 13 -100.00 -100.00 -2.37 \ -100.00 4.93 -10000 93.8148 -1045. 7061. -453. 2753. 0.0251 506. -2368. 14 -100.00 -100.00 -2.37 -100.00 4.93 -100.00 456.3949 -450. 17493. 834. 23582. 00232 488 -5181. 15 -16.06 -12.72 -0.36/ -1527 2.81 2.06 - 18.4250 -1852. -22. 7680. -15910. 0.0136 564. -3137.

16 1.51 5.55 0.15 2.89 2.29 2.57 -22.4451 -4326. 44326. -17090. 0.0271 6220 -14033. 17 2.48 6.55 0.50 507 1.93 2.94 -25.1552 o. 22729. 56790. 0.0076 O. o. 18 -0.39 3.57 0.39 1.69 2.04 282 -24.3153 -1653. 56666. 14537. 0.0206 1082. -40494. 19 7.29 11.56 -0.09 8.85 2.53 2.33 -20.5954 -489. 1021. -4937. 0.0291 O. O. 20 6.71 10.96 -0.42 7.61 2.87 2.00 -17.9455 161. 23867. -8859. 0.0272 2072. -48290.

-(18.0121 1.89 5.95 -0.41 2.78 2.87 2.0056 O. o. -3321 0.0264 11877. o. 22 0.86 4.88 -0.41

176 \

2.86 2.01 -18.0223 2.05 6.11 -0.02 3.74 2.46 2.41 -21.1824 2.20 6.26 -0.37 3.09 2.83 2.04 -18.30

are slightly less affected than the ones above includ Other Transport Equip- 25 10.89 15.31 -0.27 1282 2.72 2.15 -19.13

ment (33), Other Non-Metallic Mineral Products (38), and Petroleum Refining 26 4.89 9.07 -1.37 6.38 3.86 1.02 -9.69(39). Then further down, there is Furniture (21), and Leather, Textiles, and 27 14.01 1855 -106 14.02 3.54 1.34 - 12.48

Clothing (19). Some service industries are moderately strongly affected includ- 28 7.24 11.50 -0.92 8.97 3.39 1.48 -13.7029 9.34 13.69 -0.43 11.18 2.89 1.98 -17.82ing Finance, Insurance, and Real Estate (53) and Wholesale and Retail Trade30 7.51 11.78 -0.32 8.73 2.77 2.09 -18.72

(51). However, in percentages the effect on these is much smaller due to their2.21 -19.62large absolute size. 31 ) 18.22 22.93 -0.21 19.80 2.66

:1'27 14.54 19.10 -0.29 15.89 2.74 2.12 -18.96Those most strongly affected in percentage terms are once again mainly33 6.21 10.44 -0.55 6.89 2.01 1.86 -16.81

manufacturing ind·ustries:.-Petroleum Refining (392J21.6 percent) is the largest, 34 7.64 11.92 -0.44 8.43 2.90 1.97 -17.75followed by Machinery_(3U (l~percen0, Petroleum and Gas Wells (9) (16.7 35 7.72 12.00 -0.37 8.96 2.82 2.05 -18.37percent), Motor Vehicles (32) (15.9 percent), Aluminum Rolling and Extruding(27) (14 percent), Miscellaneous Manufacturing (42) (13.6 percent), Iron andSteel (25) (12.8 percent) and Rubber (19) (11.2 percent).

~here are relatively few industries which are made worse off by the ab-sence of the mining industries. The most obvious one is Services Incidental to

~

3736

~bl' 4 (,on'in"d) r

Industry Labour Capital Final Total Producer

Number Demand Demand Demand Output Prices Exports Imports

36 -100.00 -100.00 -2.37 -100.00 4.93 -100.00 4004.24

37 -100.00 -100.00 -2.37 -100.00 4.93 -100.00 971.99

38 4.94 9.12 -0.45 6.49 2.91 1.96 -1767

39 2.28 6.35 0.92 4.06 1.51 3.37 -28.18

40 18.89 23.62 0.06 21.55 2.39 2.48 -21.74

41 6.14 10.37 0.07 8.07 2.38 2.49 -21.82

42 12.24 16.70 -0.28 13.57 2.73 2.14 -19.09

43 -1.04 2.90 -0.55 -0.47 3.01 0.00 0.00

44 0.91 4.93 -0.33 2.01 2.78 2.09 -1870

45 -1.29 2.64 -0.26 -0.11 2.71 2.16 -19.24

46 -1.00 2.94 -0.05 0.28 2.49 0.00 0.00

47 4.26 8.40 1.82 8.03 0.62 4.28 -34.26

48 -1.15 2.79 -0.07 0.20 2.51 2.36 -20.77

49 -0.32 3.65 0.12 1.38 2.32 2.55 -22.23

50 -3.83 -0.00 1.07 -1.08 1.36 3.52 -29.24

51 -0.43 3.53 -0.26 0.59 2.71 2.16 -19.26

52 0.00 1.67 1.67 1.67 0.76 0.00 0.00

53 -0.63 3.32 0.38 1.44 2.06 2.81 -24.22

54 -1.00 2.94 -0.45 -0.45 2.91 0.00 0.00

55 0.03 4.01 -0.27 1.06 2.72 2.15 -19.17

56 0.00 0.00 -0.19 0.02 2.64 2.23 0.00

Mining (15) but others include Construction (43), Rail Transport (45), Utilities(50), and Education, Hospitals, and Health (54), all of which are importantsuppliers to the mining industries. In addition, the rise in the wage-rental ratiowill discriminate against those of the above industries which are highly labour­intensive such as Construction (43) and Education, Hospitals, and Health (54).In percentage terms, Services Incidental to Mining (15) falls by 15.3 percentand Utilities (50) by 1.1 percent, but none of the remainder falls by as much asI percent. Note that Services Incidental to Mining (15) also include services toPetroleum and Gas Wells (9); otherwise, its fall would be closer to 100 percent.

Tables 3 and 4 indicate that, as expected, aJl imports decline and all non­mineral exports rise. The rise in the price of foreign exchange is the mainsource of these changes. The percentage decline in all imports is roughly thesame for aJl industries (= 17 percent). Similarly all exports increase by about2-1/2 percent.

In addition, these tables show that the greatest price rises occur in Smeltingand Refining (26), Aluminum Rolling and Extruding (27), Copper and Alloy

38

Rolling (28), and Other Transport Equipment (33). However, relative pricechanges are not very pronounced.

FinaJly, the changes in labour and capital usage for the most part followthe changes in total output. But because of the rise in the wage-rental ratio, in­dustries are induced to reduce the\atio of their labour-to-capital use. This re­flects the fact that more capital relative to labour is released to the economycompared to the ex isting capital-labour ratio in the rest of the economy. As aresult, there are a few cases in which industries use less labour and more capitalto produce more output.

For the purposes of comparison, we also experimented by removing Pet­roleum and G£ls Wells (9) and all manufacturing industries (other than proces­sing) from the model. In the case of the former, the pattern of industries af­fected was very similar to that of the mining industries. Agriculture (I), Ironand Steel (25), Smelting and Refining (26), Metal Fabricating (30), Machinery(31), Motor Vehicles (32) and Chemicals (41) were all increased strongly whileServices Incidental 10 Mining (15) and Construction (43) were reduced. Withthe manufacturing industries absent, all mining and processing industries werestrongly favoured except for Metal Fabricating (30) and Other Non-MetallicMineral Products (38). Service and transport industries tended to decline. Thistends to corroborate the result that manufacturing, mining, and petroleum com­pete heavily for the same resources.

Metal Mining Industries Absent (4, 5, 6, 7,8)

In this and the following cases we discuss mainly the effects on total outputs ofeach industry. The overall results in all cases are so similar that further elabora­tion of other effects is unnecessary. Table 5 summarizes the main changes intotal outputs occurring for all the experiments conducted. Each row of this tableclassifies industries by the magnitude of their total output changes resultingfrom the absence of individual mining industries or groupings of mining indus­tries. (Industry numbers refer to those listed in table 1).

The pattern of changes in industry outputs from the absence of metal.mines is very similar to the case discussed above except that the magnitudes areslightly less. Agriculture (I), Petroleum and Gas Wells (9), Food and Feed(16), Leather, Textiles, and Clothing (20), Iron and Steel (25), Metal Fabricat­ing (30), Machinery (31), Motor Vehicles (32), Other Electrical Products (35),

hemicals (41), and Miscellaneous Manufacturing (42) are all strongly in­creased when metal mines are absent; Pulp and Paper (23) and Smelting andRefining (26) are increased slightly less. In general, metal mines appear tocompete for resources most strongly with manufacturing industries and primaryindustries, especially those which are capital-intensive or highly tradeable orwhich are purchased from capital-intensive industries. All manufacturing indus­tries find their outputs increased substantially when metal mining industries are

39

~0

Table 5

Classification oJOutput Changes Resulting From Absence oJ the Mining Industries: Capital Retained

Industries Whose Output Expanded by: ($ Thousand)

More than 80.000- 60.000- 40,000- 20,000- 15,000- 10,000-Absent Industry 100,000 100.000 80.000 60.000 40.000 20.000 15.000

4. Base Metal and Other 1.9,30.31.32 16.20.25,41 35.42.53.56 23.26.39 19.24.33,38, 6.17.21.47 8,28.34,44.45.49Metal Mines 51.52.55

5. Uranium Mines 326. Iron Mines 32 31 1.9,16.20, 4.23 38

25-6,30.35,41-2

7. Gold Mines 32 20.30-1 25.358. Coal Mines 32

10. Asbestos Mines 31-2 25-6,30 1,9,16,20,35,41I I. Gypsum Mines12. Salt Mines13. Other Non-Metal Mines 32 25.30-114. Quarries and Sandpits 32 31 20,25-6.3036. Cement 31-2 1.25-6.30.41 9,16.20.3537. Lime

Metal Mining Industries 1.9.16.20.25. 23.26 53 33.38-9,51. 2,17,19.21, 13,27-8.49 29,5630-2.35,41-2 52.55 24.34.47

Non-Metal Mining 32 32 25-6,30 1.9.16.20. 4.33 23,38.53Industries 35.41-2

All Mining Industries 1.9.16.20.23. 53 33.38-9.51 19.21.52.55 2.17.24.27. 29 3.22.4425-6.30-2.35. 28,34.47.49

41-2

~ Table 5 (continued)

Industries whose OmputIndustries Whose Output Expanded by: ($ Thousand) decreased by: ($ Thousand)

More thanAbsent Industry 5.000-10.000 1.000-5.000 0-1.000 0-1.000 1,000

4. Base Metal and Other 13.27.29,46,48, 5.7.10,11,12,14,18, 37 15,43,54Metal Mines 50 22.36.40

5. Uranium Mines 1,9.16.25,26.30.31 4.19.20.23.24.33.35. 2.3.6.7.8,10.11,12.13. 15,37,5438.39.41.42,51-3. 14.17.18.21.22,27.28.29.55-6 34.36,40.43,44,45.46-50

6. Iron Mines 2,8.19.21.33-4 3.13-4,17-8,22,27-9, 5,7,10-2,37,40 15,24,49 43-6,48,36.39,47.52 50-1,53-6

7. Gold Mines 2.16.23.26,33, 1.4,7-9.19.21-2,24.27-8. 3.5.10-4.17-8.29.36. 37 15,50,5242.51.55 34.38-9.41,43-4.49.53.56 40.45-8,54

8. Coal Mines 16.20,25.30-1.35 1.2.4.9.19.21.23-4.26. 3,5-7, I0-5, 17-8.22, 45 50.5633-4,38.41-3.51.53.55 27-9.36-7.39.40.44.

46-9.52,5410. Asbestos Mines 4.23.33.38.42.53 2.6.8,13.17,19,21. 3,4.7.11-2,14.18.22. 50.54 15.43,45,56

24,27-9.34,39,44,47. 36-7,40.46.48.5549,51-2

1I. Gypsum Mines 20.30-2 1-10.12-14,16-9.21-9, 15,43,50,52,5433-42.44-9,51.53,55-6

12. Salt Mines 32 1.9.16.20,25-6.30-1, 2-8,10-1,13-5,17-9, 23.37.45.50.5635,41-2 21-2,24,27-9,33-4.36.

38-40,43-4.46-9.51-513. Other Non-Metal Mines 1.9.16.20.26, 4.6,8.17.19,23-4,27,28. 2,3.5.7,10-2.14.18,21-2. 54 15,43,50

35,41-2 33-4.38-9,44.51-3.55-6 29.36-7.40.45-914. Quarries and Sandpits 1,9.16.23.35. 2.4.6,7.13.17.19.21.24, 3.5.7.10-2.18.22.29, 15,46,48, 39.43-5.

41-2 27.28,33-4.38.53.55 36.37.40.47.49.51-2 50.54 56

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not present. The illlPlll'l 011 olhcr minin ' indu~tries is nol substantial comparedwith that in manuf'u<:turing industries.

As with mining as a whole, the absence of metal mining industries tends tocause reductions in the outputs of Services Incidental to Mining (15), Construc­tion (43), Utilities (50), and Education, Hospitals, and Health (54), all indus­tries which are either customers of or suppliers to metal mines, or are labour­intensive, or are users of imports. Lime (37) also is reduced when metal minesare absent, probably due to its relative labour-intensiveness.

Non-Metal Mines Absent (10, 11, 12, 13, 14)

The absence of the non-metal mines has once again a similar but much lesspronounced effect, as compared with metals. This, of course, is due to thesmaller magnitude of these industries. The single industry which is moststrongly increased is once again Motor Vehicles (32), followed by Machinery(31), and then Iron and Steel (25), Smelting and Refining (26), and Metal Fab­ricating (30). At the next level, moderately strongly increased industries in­clude Agriculture (I), Petroleum and Gas Wells (9), Food and Feed (16),Leather, Textiles, and Clothing (20), Other Electrical Products (35), Chemi­cals (41), and Miscellaneous Manufacturing (42). These are the identical indus­tries most strongly increased by the absence of metals and for much the samereasons. They are either capital intensive (in which case the fall in the wage­rental ratio favours them) or highly tradeable (in which case the rise in the priceof foreign exchange favours them) or they use as inputs products of industrieshaving high capital intensities. As with the previous cases, aJl manufacturingindustries rise, all other mining industries rise, and transportation is not verystrongly affected (it having a strong forward linkage to mining).

The industries which suffer as a result of the decline in non-metal miningare familiar as well. They include Services Incidental to Mining (15), Construc­tion (43), Rail Transport (45), Utilities (50), Education, Hospitals, and Health(54). These are industries backwardly linked to non-metal mining or verylabour-intensive. The 'Dummy industry' (56) also declines.

Individual Mining Industries Absent

This pattern of similarity of effects is surprisingly borne out when we look atthe absence of each separate mining industry. Consistently the same industriestend to be strongly favoured and discriminated against. Motor Vehicles (32) isconsistently the most strongly favoured industry when individual mining indus­tries are absent. Machinery (31) and Metal Fabricating (30) are almost asstrongly favoured, followed by Iron and Steel (25), Smelting and Refining (26),Agriculture (l), and Petroleum and Gas Wells (9). Moderately stronglyfavoured industries include Food and Feed (16), Leather, Textiles, and Clo­thing (20), Chemicals (41), Miscellaneous Manufacturing (42), and Other Elec-

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trical Products (35). Virtually thc samc industrics m'c alTectcd beneficially inevery case, reflecting the fact that the mining industries have substantially iden­tical impacts on the economy except for magnitude. The magnitudes vary be­cause the size of the mining industries vary, with Base Metals (4) being by farthe largest, followed by Iron (6).

The forces causing particular industries to benefit most from the absenceof the mining industries have already been dealt with in detail above. When anymining industries are absent, the price of foreign exchange rises, and thus it isnot surprising that industries which produce highly tradeable products should befavoured. What is perhaps a bit surprising is the fact that even though the ab­sence of some mining industries causes the wage-rental ratio to fall rather thanto rise, the pattern of industries which are affected strongly remains much thesame. Only Agriculture (I) and Petroleum and Gas Wells (9) are slightly lessfavoured, indicating that the change in the wage-rental ratio is of much moreimportance for these industries than for the others affected. For the others, theexchange rate change and the input-output relations tend to be the predominantinfluences at work.

The pattern of industries adversely affected is also quite similar, althoughthere is a discernible difference between the effect of the absence of capital­intensive mining industries (which causes the wage-rental ratio to rise) and thatof other, more labour-intensive, industries. Overall, those industries tending tofall when mining industries are absent include Services Incidental to Mining(15), Construction (43), Utilities (50), some transport (especially rail), andsome service industries - especially Education, Hospitals. and Health. (54).These are either suppliers to mining industries or labour-intensive industrieshurt by the rise in the wage-rental ratio. In addition, they are industries whichdo not produce tradeable commodities. The cases in which the wage-rental ratiofalls - Gold (7), Coal (8), Gypsum (I I), and Lime (37) - do not tend to af­fect as adversely such labour-intensive industries as Education, Hospitals. andHealth (54), and Construction (43).

Mining Industries Absent: Capital Removed

As pointed out earlier, treating supplies of labour and capital as fixed may notbe considered very realistic. Some capital which has been accumulated in themining industry might not have been accumulated at all in the absence of min­ing. Much of it reflects capital which was financed from abroad. We have con­ducted an alternative set of computations in which the various mining industrieswere removed and their associated capital was removed as well. Thus, whenthe industry is absent only its labour is available for use elsewhere. The effectsof these experiments on the wage-rental ratio, the exchange rate, and the wel­fare index are reported in table 6, and the changes in outputs by industry in table 7.

(

44

Tahk 6

Selected c:ITe('(s r!l'llhsellce I!/the Millillg flldllstrie,\': apital Rem()\'ed(I'('/'cellt Challges)

Wage-Rental Exchange WelfareIndustry Absent Ratio Rate Index

4. Base Metal & OtherMetal Mines -0.87 0.44 -1.27

5. Uranium Mines -0.02 0.04 -0.056. Iron Mines -0.36 0.20 -0.317. Gold Mines -0.22 -0.03 -0.01X. Coal Mines -0.19 -0.02 0.01

10. Asbestos Mines -0.14 0.07 -0.17II. Gypsum Mines -0.02 0.00 -0.0112. Salt Mines -0.03 0.01 -0.02IJ. Other Non-Metal Mines -0.10 0.04 -0.1314. Quarries and Sandpits -0.16 0.01 -0.10~6. Cement -0.04 0.11 -0.15n. Lime -0.02 0.01 0.00

Metal Mining Industries -1.68 0.78 -1.65Non-Metal Mining

Industries -0.42 0.13 -0.43All Mining Industries -2.15 1.25 -2.28

As would be expected, the wage-rental ratio falls in each case because ofthe direct release of labour. Some capital will indirectly be released as a resultof the reduction in outputs of industries linked to mining, but it is never enoughto overcome the effect of the direct reallocation of labour on the wage-rentalratio. In most cases, the price of foreign exchange rises, reflecting the loss ofexports from the industry. However, without Gold (7) and Coal (8) the price offoreign exchange actually falls. The explanation here probably lies in the rela­tively large wage-rental ratio fall induced in these cases. If Canadian import~

wmpeting and/or export industries tend to be labour-intensive they will befavoured by a fall in the wage-rental ratio, perhaps so much so as to offset thereduction in mineral exports.

The changes in industry outputs occuming offer a useful comparison withthe cases in which the capital of missing industries is retained for redistributionwithin the economy. Whereas the wage-rental ratio tended to rise in the latter,it tends to fall here. The exchange rate tends to move in the same direction. Acomparison of the two results should give an indication of the importance of thewage-rental ratio effects on resource allocation, as opposed to those operatingvia exchange rate changes and the input-output relations.

45

~ Table 7Classification a/Output Changes Resulting From Absence a/the Mining Industries: Capital Removed

Industries Whose Output Expanded by: ($ Thousand)

More than 50.000- 30.000- 20.000- 10.000- 5,000- 1.000-Absent Industry 100.000 100,000 50.000 30.000 20.000 10.000 5,000

4. Base Metal and Other 31,32 20,25,30, 9,23,26.33 1.2,6,8,19,21, 28,29 10.13,17,36,39,40,47Metal Mines 35,41.42 24.27,34.38,44

5. Uranium Mines 32 31 1.9.20.23.25.26.30.33.35,38.42.4

6. Iron Mines 32 20,25,30,31 26.35,42 1.4.23.33,41 2.8,9.19,21, 3.13,14,16.17,27,34,38 28,29

7. Gold Mines 32 20,25.30.31.35 1,16,23,26, 2,4,6.8,9,19,21,24,27 ,33,42 28,34,38,41,43,44,49,

51.558. Coal Mines 32 20.25,30,31,35 1.2,4,16,19,21.23,26,

33,34.38.41,42,43,5 I,5510. Asbestos Mines 32 31 20.25,26,30,35 4.33,41,42 1,2.6,8,9, I3. 19,21,23,

27 ,28 ,29 .34 ,38 ,44I I. Gypsum Mines 20,3 I,3212. Salt Mines 32 20.25.26.30,31.33,

35.4213. Other Non Metal Mines 32 31 20.25,26,30. 1,4,6.8.9. I9,27 ,28,

35,42 33,34,38,4114. Quarries and Sandpits 32 20,25,30 26,31,33,35, 1,2.4.6.8.16.19,

41.42 2 1.23.27 ,28.34,3836. Cement 32 31 20.25.26.30. 4.33.35.42 1.2,6.9.13,19,21,23,

41 27,28.29,34,38.44.45.20

37. Lime 25.26,30,31,32.35,41

~-..l

Table 7 (continued)

Industries Whose Output Expanded by: ($ Thousand)

More than 50,000- 30.000- 20,000- 10,000- 5,000- 1,000-

Absent Industry 100,000 100,000 50.000 30.000 20.000 10,000 5,000

Metal Mining Industries 20,25,30, 9,23,26. 1,38 2,19,21,34 16.24,27.28. 3.13.44 10,14,17.22,36,40,47

31,32,35 33,41,42 29

Non-Metal Mining 31.32 20.25, 35,42 4.33,41 1.6,8.9.19.21, 2,3,24.28,29

Industries 26,30 23,27 ,34,38

All Mining Industries 20,25,26. t .9.23. 19.2 J. 2,24,27. 16,29 3,17,44 22,40,47

30.31,32, 33 34.38 2835.4 1,42

..,.00

..,.\0

Table 7 (continued)

Expanded (conL) Industries Whose Output Decreased by: ($ Thousand)

More thanAbsent Industry 0-1.000 0-1,000 1.000-5,000 5,000-10,000 10,000

4. Base Metal and Other 3.5.7.11.12,14 22.37 18.45 46.49 15.16,43.48.50-56Metal Mines

5. Uranium Mines 2.3.6-8.10.11.13.14. 12.15.18.37.41.45. 51-53.56 4316.17,19.21.22.24. 46.48,49.50,54,5527 .38,29,34.36,39,40,44,47

6. Iron Mines 5,7,10,11,12,22.36, 18 15.24.49.54 39,44 43.45,46,48,50-53,37.40,47 55.56

7. Gold Mines 3,5.10,11.12.13.14, 37.48,53 50,52 1517,18,22,29,36.39,40.45,46,47,54,56

8. Coal Mines 3,5.6,7.9-15.17.18, 39,45,46,47,53 50,52.5622,24,27,28.29,36,37,40.44,48.49.54

10. Asbestos Mines 3,5,7,11,12,14,17, 16.18 15,39,45.46. 52,55 43,51,5622,24,36,37,40.47 48,49,50.53,54

I I. Gypsum Mines 1-10,12.13.14.17,21. 15.16.18.39.43,22,23,24,25.26,27- 45-5630.33,34-38.40-42,44

I"

Table 7 (concluded)

Absent Industry

12. Salt Mines

13. Other Non Metal Mines

14. Quarries and Sandpits

36. Cement

37. Lime

Metal Mining Industries

Non-Metal MiningIndustries

All Mining Industries

Expanded (conL) Industries Whose Output Decreased by: ($ Thousand)

More than0-1.000 0-1.000 1.000-5.000 5.000-10.000 10,000

1.3-11.13-17.19.21. 2.18.37.39.45.46. 23.43.5622.24.27 .28.29.34. 47-5436,38,40,41,4·U52,3,5.7,10.11.12.14. 18.22.39,45-47.49 15.16,48,50.54-56 51-53 4317,21,23.24.29.36.37.40.443.5.7.9-13.17.22.24. 15.18.47.49,54 39,44.45.46.48. 43.51,52.53 5629,36.37.40 50,553.5.7.10.12,15.16. 11.14.18.39.47 46.48.49,53.54.55 8.50.51.52 43.5617.22.24.37.401,2.3-7.9-13.15-19. 8.14.23.36.39,45. 5621.22.24.27 .28.29. 46.47.48.49.50.33.34.38.40.42.43. 51.5244,53-5511.12 37 18.39 49 15.43.45.46,48,

50,51-56

5.7.17.22.36.37,40 16.44,47 18.46.48.49.54 15.39.45.50 43,51,52,53.55.5618,39 15,43,45,46,48.49,

50,51,52.53.54-56

'11,.I,

Inspection of table 7 reveals an unexpected degree of similarity with theresults obtained when capital was retained. Once again, Motor Vehicles (32) aremost strongly increased, along with Machinery (31), Leather, Textiles, andClothing (20), and Metal Fabricating (30). Next strongly affected are OtherElectrical Products (35), Iron and Steel (25), Smelting and Refining (26),Chemicals (41), and Miscellaneous Manufacturing (42). These industries wereall strongly increased when mining industries were removed without removingcapital. Apparently the capital intensity of these industries is not after all animportant factor in explaining the strong increase in their output. The rise in theprice of foreign exchange is still an influence in causing these outputs to rise asare input-output relationships. However, even when the exchange rate fallsslightly, as it does when Gold and Coal are eliminated, many of these same in­dustries are still most strongly affected. All this would indicate that perhaps thestrongest influence of all lies in the inter-industry input-output relationships,many of which are far from direct.

There are some industries which were previously much more strongly af­fected than they are under the present assumption of capital removal. Forexample, Agriculture (I) and Petroleum and Gas Wells (9) were previouslymuch more strongly increased when the mining industries were absent but theircapital allowed to reallocate. These are cases in which the change in wage­rental ratio is likely to be quite important since they are strongly capital­intensive. In addition, industries which use the products of these industries asinputs - Food and Feed (16) and Petroleum Refining (39) - are much lessstrongly affected.

By the same token, many of the same industries whose outputs fell previ­ously continue to be strongly discriminated against here. There are more indus­tries whose outputs fall now than before, because of the reduction of resourcesavailable when some capital is removed. Services Incidental to Mining (15),Construction (43), Utilities (50), and Rail Transport (45) are strongly reducednow, as before. Declining less strongly are Truck Transport (46), Other Trans­port and Storage (48), and Communications (49). These industries are eithersuppliers to mining or non-traded goods industries (or both). Those previouslydiscriminated against mostly due to the rise in wage-rental ratio, but which arenow less strongly affected, are the service industries, especially Education,Hospitals, and Health (55). But the overall similarity of results indicates thatonce again the input-output relations appear to have the strongest influence,along with exchange rate changes.

There is, of course, no way of knowing how much capital would havebeen accumulated in Canada had the mining industries not existed. The previ­ous experiments considered the extreme cases: first, the capital stock wouldhave been the same in the absence of mining and second, the capital used inmining would not have been accumulated at all had mining not existed. We

50

also conducted an intcrmcdiate experiment in which all mining industries wereabsent and one half of the capital that they use was assumed to be available foruse elsewhere (as well as all the labour). The results we obtained were veryclose to what would be obtained by simply interpolating between the two ex­treme cases. The wage-rental ratio rose by 0.75 percent, which is about mid­way between the other cases. Thus, less labour is released relative to capital (ascompared to the national average) even though only half of the capital is re­leased. The exchange rate rises by 3.09 percent and the welfare index falls by1.15 percent when mining is removed. Both of these are approximately halfway

between the percentage changes obtained earl ier, indicating that log-linear in­terpolation would be appropriate for predicting the effects of any other experi­ments.

The changes in industry outputs obtained when half the mining capital isremoved are once again predictable from interpolation of the two extremecases. Large increases are registered in Agriculture (I), Petroleum and GasWells (9), Food and Feed (16), Leather, Textiles, and Clothing (20), Pulp andPaper (23), Iron and Steel (25), Smelting and Refining (26), Metal Fabricating(30), Machinery (31), Motor Vehicles (32), Other Electrical Products (35),Chemicals (41), and Miscellaneous Manufacturing (42). Those ineustries whichfall most when all mining is eliminated include Services Incidental to Mining(15), Construction (43), Rail Transport (45), Utilities (50), Wholesale and Re­tail (51), and Owner-occupied Housing (52). The reasons for these effects areas outlined above.

The Effects on the Welfare Index

As discussed earlier, changes in the welfare index reflect changes in the utilitylevel resulting from changes in the quantities and composition of final de­mands. They do not include utility changes arising from the reallocation oflabour amongst various occupations. The changes in the welfare indices com­puted for the various experiments are shown in tables 2 and 6 above.

If the economy were undistorted the welfare index would always fall whenan industry is removed. However, as table 2 indicates, our measure shows wel­fare actually increasing in several cases when mining industries are missing butall capital is allowed to reallocate. In every case both increases and declines inwelfare are insignificant, never being as much as 0.1 percent.

Welfare falls when all mining industries are absent together and whennon-metals are absent but rises when the metal mining industries are missing.For individual cases, welfare falls in only five cases out of the twelve -Iron,Asbestos, Gypsum, Other Non-Metallic Mines, and Quarries and Sandpits.This is a rather unexpected result and must be explained by the fact that in theother seven cases resources are being reallocated towards industries which are

51

'II:':I'", I

discriminated against either by the tax and tariff system or by a relatively highwage rate.

When capital is removed along with the mining industries we have all themore reason to believe that welfare should fall, since now we are reducing theamount of resources available to the economy as a whole. In fact, welfare doesfall in all cases except one - Coal Mines. When all mining industries are ab­sent together, the reduction in welfare amounts to 2.3 percent, most of which isdue to the metal industries which employ significant amounts of resources.

Overall, however, the observed changes in welfare are surprisingly small;the economic loss from reallocating factors of production amongst industries isnot large. The fact that the products of most industries are readily availablethrough foreign trade must account for this to a large extent. One must cautionagainst reading too much into this result. The estimated welfare loss is a com­pletely static measure. It does not reflect any dynamic or longer run effects thatmight occur from doing without an industry, such as a change in capital ac­cumulation, growth rate, or pattern of economic development.

52

5. The Effects of Expanding Mining and Processing Industries

Introduction

In the last chapter the impact of the mining industries was assessed by ahypothetical consideration of how the nation's resources (or factors of produc­tion) would have been used had the mining industries not existed. In this chap­ter, we perform a slightly different, and perhaps more realistic, exercise de­signed to evaluate the impact of an expansion in production in the mining andprocessing industries. These results may be more relevant for policy makerswho might be considering measures which may cause an incremental change inmining and processing. We include the processing industries because of the ob­vious public interest in the debate as to whether more minerals should be pro­cessed in Canada rather than exported in the raw form, and because of the closelinkages between the processing and mining industries. More generally, anyfonnulation of a so-called' industrial strategy' for Canada must presupposeknowledge of the sorts of allocative effects we attempt to compute here. Thecomputational method of inducing an expansion in the mining industries is toincrease the demand for exports exogenously. 1 The actual computations per­formed were to exogenously shift the export demand functions by $10 millionfor each of the twelve mining industries and six processing industries 2 sepa­rately. In each of the eighteen cases, the shock general equilibrium solution wascompared with the control solution to obtain the effects on resource allocation,prices, the exchange rate, and welfare.

I. In lerms of the notation in appendix I. we increase Eo1 by some exogenously detenninedamount. Alternately. we could have exogenously increased final demand devoted to the miningindustry in question but this would have entailed reducing the share of expenditures devoted toother induslries in some arbitrary way (since all shares must add to unity). There was no

obvious a priori way of doing this.2. The processing industries included in this economy were /ron and Steel. Smelting and

Refining, Copper and Alloy Rolling. Metal Casting and Extruding nes. Metal Fabricating. andOther Non-Metallic Mineral Products. These industries are conveniently aggregaled according

to Ihe degree of processing done. Unfortunately. Smelting and Rejining includes aluminumsmelling and refining. It would have been ideal to separate this but for confidentiality reasons

we were unable to. Furthermore. we have not included Coal Products as a proc-essing industrysince it is subsumed under Other Petroleum and Coal Producl.\' and presumably forms a small

part of that industry.

53

'11

"I' "~

There are two important sorts of resource allocative effects to be observedfrom an exogenous expansion of one of these industries. First, since we are as­suming that the economy is endowed at a point of time (i.e., 1966) with a fixedquantity of resources, any increase in resources devoted to, say, mining mustbe drawn from elsewhere in the economy. The computations will tell which in­dustries are reduced when mining is expanded. Second, because of direct link­ages between the industry to be expanded and certain others, these latter mayalso experience an increase in output thus drawing even more resources fromthe rest of the economy.

When an industry's output expands, the price mechanism determines fromwhich industries the resources it uses are drawn. For example, suppose that theindustry which expands is relatively capital-intensive (i .e., has a high capital­to-labour ratio compared to the rest of the economy). Its expansion requires re­latively large amounts of capital compared to labour. However, when resourcesare drawn from the rest of the economy, more labour is released relative to cap­ital because the rest of the economy is less capital-intensive. Thus, capital hasbeen made more scarce in the economy relative to labour and the wage-to-rentalratio falls. Capital-intensive industries find their costs rising relative to labour­intensive industries and thus their prices rise more, their demand falls more,and their output contracts more. Therefore, we expect that when a capital­intensive industry expands, other capital-intensive industries would be affectedmore strongly than labour-intensive ones. Also, because of the induced wage­rental fall, all industries are encouraged to employ more labour-intensivetechniques. 3

In addition to these influences at work due to the effect on the wage-rentalratio, outputs of various industries are also affected via changes in the exchangerate and due to inter-industry flows as depicted by the input-output table. Theexogenous increase in exports would be expected to cause the price of foreignexchange to fall thus discriminating against both import-competing industriesand other export industries. The inter-industry relationships can work either tothe benefit or to the detriment of an industry depending upon whether an indus­try which uses its product as an input expands or contracts. In addition, if anindustry expands due to an increased demand for its output, its relative pricewill rise. Industries which use that industry's product as an input will thereforebe adversely affected.

Those industries which benefit from an expansion of a particular mining orprocessing industry will normally do so because of a direct or indirect backwardlinkage from mining via the input-output system. If the mining or processing

3. Of course, exactly the opposite sort of mechanism is at work if the industry initially expandedis labour-intensive. These mechanisms are all familiar to students of international trade and aresummarized in a two-sector model in R. W. Jones, 'The Structure of Simple GeneralEquilibrium Models', Journal ofPolitical Economy. vol. 73, 1965, pp. 557-72.

54

industry purchases significant quantities of the output of an industry, the lattermay be expected to expand. However, it is possible that other influences maycause an industry to expand. Thus, when a capital-intensive industry expands itforces the wage-rental ratio to fall and the exchange rate to fall. These influ­ences may work so strongly to the benefit of labour-intensive industries orimport-competing industries as to induce an actual expansion in their outputs.

In the following sections we summarize the effects of expanding first theining industries individually and then the processing industries, all by an ini­

tial $10 mill ion increase in export demand.

Expanding the Mining Industries

Table 8 summarizes the industries whose outputs increase or substantially de­crease when exports are exogenously increased in the various mining industries.The industry numbers refer to the industry aggregation as presented in table I.The remarkable thing about these results is the extent to which all the miningindustries tend to affect the same industries both positively and negatively. Wediscuss these results by first considering the industries which benefit from min­ing expansion and then those whose outputs are reduced.

INDUSTRIES WHOSE OUTPUTS EXPAND

Those industries which expand when mining industries expand tend often to besuppliers of inputs into the relevant mining industry. The following cases ofsuch backward linkages from mining may be cited:

i Services Incidental to Mining (15): This industry increases substantiallyfrom an expansion in Base Metals (4), Asbestos (10), Gypsum (II), and OtherNon-Metallic Minerals (38). It increases by a smaller amount from expansionsin all mining industries except Coal (8), Salt (12), Cement (36), and Lime(37). We verify from the input-output coefficients in table 14 that these latterindustries are very minor users of Services Incidental to Mining (which in­volves such things as exploration).ii Transport Industries (44-49): Water (44), Rail (45), and Truck (46) trans­port rose substantially when expansion occurred in Iron (6), and Quarries andSandpits (14). Rail (45) and Truck (46) transport rose substantially when Lime(37) output increased. Overall, all transport industries except Pipelines (47)tended to increase when some mining industries increased. However, not allmining industries caused transport to increase - Base Metals (4), Uranium(5), Gold (7), Gypsum (II), and Other Non-Metals (13) did not. Rail Trans­port (45) was the one most frequently affected positively. This linkage is notnearly as strong as that of Services Incidental to Mining (15).iii Utilities (50): This industry increased substantially from increases in Gold(7), Coal (8), Other Non-Metals (13), Cement (36) and Lime (37), and less

55

INDUSTRIES WHOSE OUTPUTS CONTRACT

The above cases in which outputs expand are most often traceable directly tothe input-output relationships. One does not need a sophisticated generalequilibrium computation to deduce where strong backward linkages lie. 4 How­ever, when the economy faces resource constraints, one does need some pricingmechanism to infer from which industries the expanding sectors draw theneeded resources. Such is the justification for employing a general equil ibriumcomputational technique to study the impact of expanding the mining indus­tries. As table 8 indicates, the pattern of industries whose outputs have been re­duced is very similar for the expansion of all mining industries. We thereforeproceed by considering in rough order of magnitude the industries which aremost adversely affected and attempt to explain the main causes at work. It is, of

4. See, for example, the studies cited earlier by Bucovetsky, 'Resource Industries in the CanadianEconomy' and Stahl, 'The Mineral Industry and Economic Development'.

so from all other mining industries with the exception of Base Metals (4) andUranium (5). Once again, inspection of the input-output coefficients verifiesthat the industries causing increases are fairly heavy users of utilities. This istherefore a fairly strong backward linkage.

There are a number of other industries which benefit from an expansion of min­ing industries but which are not so directly connected as the above. The mostobvious of these is Construction (43). Its output increases substantially when

"'Base Metals (4), Iron (6), Asbestos (10), Gypsum (II), Other Non-Metals (13),Quarries and Sandpits (14), and Lime (37) increase and less so when all othermining industries except Gold (7) and Coal (8) increase. It is perhaps the indus­try most beneficially affected by expansion of the mining industries. Yet, Con­struction (43) is not as substantial an input into the mining industries as Ser­vices Incidental to Mining (15), Transport Industries (44-49), or Utilities (50).We must therefore look elsewhere for the source of its increase. For one thing,it is a large input into Rail Transport (45) and Owner-Occupied Housing (52),both of which tend to be beneficially affected by the expansion of mining.Perhaps as important is the fact that Construction (43) tends to be a labour­intensive industry which benefits from the reduced wage-rental ratio arisingwhen the capital-intensive industries expand.

The only other industries to be significantly favoured are Pulp and Paper(23) by an expansion of Salt (12), Petroleum Refining (39) by an expansion ofQuarries and Sandpits (14), and the Dummy Industry (56) by Asbestos (10),Salt (12), Cement (36), and Lime (37). The Petroleum and Dummy industry in­creases are clearly cases of backward linkages, but the Pulp and Papcr increaseis not so obvious and presumably has to do with induced effects via the input­output tables.

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course, somewhat dangerous to ascribe a particular cause to each industry's de­cline when so many things are going on simultaneously. The causes givenbelow must therefore be considered more or less conjectural.

i Metal Fabricating (30), Machinery (31), and Motor Vehicles (32): These in­dustries are consistently reduced by a significant amount (over $1 million)when any of the mining industries expands. One obvious reason for this is thatthese are capital-intensive industries and thus suffer from the reduced wage­rental ratio. This, however, is not the entire reason since, by inspection oftable 12, we see that other industries have larger capital intensities but aremuch less affected. There are probably other indirect influences operating viathe input-output relationships. For example, all these industries use inputsfrom capital-intensive industries and therefore face higher input prices whenthe wage-rental ratio falls. Such forward linkages may account for much of thereduction in the outputs of these manufacturing industries. Finally, due to thefall in the price of foreign exchange, exports of these industries are adverselyaffected and thus so is output.ii Leather, Textiles, and Clothing (20): This industry is reduced by at least$1/2 million when each mining industry expands, and by over $1 millionwhen most expand. Since this is not a capital-intensive industry the sourcemust be sought elsewhere than in the changed wage-rental ratio. The mostlikely explanation is that since this industry is mainly import-competing, thereduction in the price of foreign exchange makes imports cheaper and thedomestic industry is forced to contract. Inspection of the computational resultsconfirms that imports rise significantly. This could not be the only cause,however, since the exchange rate rises in the case of Gold (7) expansion andyet imports rise and domestic production falls in Leather, Textiles, and Cloth­ing (20). There must be some indirect affects operating through the inter­mediate inputs used in this industry. This particular case points out clearly theneed for a computational method such as this to obtain the effects of expand­ing mining industries (or any others for that matter).iii Iron and Steel (25): This primary processing industry is probably affectedmainly by the lower wage-rental ratio in conjunction with the higher price ofintermediate inputs which are also capital-intensive. It is strongly reduced byall mining industry expansions.iv Smelting and Refining (26): This industry is also strongly reduced by allexpansions, and for much the same reasons as above. One ought to mentionhere the fact that the aluminum smelting and refining component is likely tobe beneficially affected due to the lower price of imported raw material.Therefore, the rest of the smelting and refining industry may be even muchmore adversely affected than these figures suggest.v Agriculture (I): The output of agriculture falls by at least $1/2 million in allexpansions and by over $1 million for Base Metals and Coal expansions. The

58

likely cause here is the reduced price of foreign exchange which is detrimentalto exports on the one hand and beneficial to import competition on the other.As well, Agriculture (I) does tend to be fairly capital-intensive.vi Petroleum and Gas Wells (9): This is strongly affected by many but not allexpansions. The reasons are likely to be the same as for Agriculture (I) ­capital intensity and reduction in the price of foreign exchange.vii Food and Feed (16) and Other Electrical Products (35): These industriesfall by at least $1/2 million in all cases, presumably due to the exchange rate

.. effect.viii Petroleum Refining (39) and Other Petroleum and Coal Products (40):These are reduced significantly by almost all expansions. The prices of theirinputs are increased due to their high capital intensity, and since they aretraded the reduced price of foreign exchange presumably has some adverse ef­fect.

Finally, there are some industries which are significantly reduced by a fewof the mining expansions. These include Other Transport Equipment (33), PUlpand Paper (23), and Miscellaneous Manufacturing (42).

The overall impression created from expanding the various mining indus.tries is that selected manufacturing industries tend to be systematically dis­criminated against. They include those which are especially characterized byhigh capital intensities, a large proportion exported and/or imported, and indus­tries which use as inputs capital-intensive products. Any expansion of the min.ing industries must come at the expense of these types of manufacturing indus.tries, Petroleum and Gas Wells (9), and Agriculwre (I). The service industries,Utilities (50), Communications (49), and Construction (43) are not severely af­fected.

THE WAGE RATE, THE EXCHANGE RATE, AND THE WELFARE INDEX

The effects of mineral production expansion on the wage rate and the exchangerate have already been mentioned above. The computations indicate that thewage-rental ratio falls when all mining industries expand except for Gold (7).This reflects the capital-intensive nature of the mining industries. Their expan.sion increases the demand for capital relatively more than that for labour, mak·ing capital comparatively scarcer and therefore forcing its price to rise (rental)in relation to the price of labour (wage rate). The case of Gold (7) is somewhatpuzzling. The backward linkages to the gold mining industry must cause rela·tively more labour-intensive industries to expand to offset the capital intensityof the Gold (7) industry. Also, from table 12, we see that the Gold (7) industryis much less capital-intensive than the rest of the mining sector.

The change in the price of foreign exchange exhibits a similar pattern. Itfalls in each case except that of Gold (7). The initial rise in exports will tend todepress the price of foreign exchange for obvious reasons. In addition, if the

59

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wage-rental ratio falls as a result of the mining expansion, this will discriminateagainst capital-intensive industries making their prices higher. To the extentthat import-competing industries tend to be relatively labour-intensive, importswould fall and the exchange rate would fall further. In the case of Gold (7), theopposite seems to have occurred. The wage-rental ratio rose, discriminatingagainst import-competing industries and causing a rise in imports. The rise inimports more than offset the initial export increase, causing the price of foreignexchange to rise.

The effect of expanding the mining industries on the welfare index is mixed.It rises in six cases[Iron (6), Asbestos (10), Gypsum (II), Salt (12), OtherNon-Metals (13), and Quarries and Sandpits( 14)] and falls in the other six [BaseMetals (4), Uranium (5), Gold (7), Coal (8), Cement (36) and Lime (37)].

This would indicate that, given the existing set of distortions, the economywould be better off if the former six expanded incrementally and the latter sixcontracted. It is very difficult to pinpoint the reasons for this result. Welfare mayrise if resources are shifted into industries which tend to be discriminated againstby the tax system 5 or if resources are pushed into industries with relatively highwage rates. We cannot say a priori which of these influences is strongest in anyof the above cases.

Expanding Mineral Processing Industries

The impact of expanding the Canadian minerals processing industries is obtainedmuch as above by exogenously increasing initial export demand by $10 million.The results are depicted in table 9. Our analysis of the effects proceeds as beforeby considering separately those industries which benefit and then those whoseoutput is reduced.

INDUSTRIES WHOSE OUTPUTS EXPAND

As in the mining expansion experiments, an expansion of the processing indus­tries tends to benefit industries directly or indirectly linked on the input side tothe processing industries. It is simplest to consider each processing industry inturn and the increases in output it induces via its backward linkages.

i Iron and Steel (25): This industry causes output to expand substantially inIron Mines (6), Coal (8), and Utilities (SO), all of which are sizeable inputs intoIron and Steel. To a lesser extent, increases are induced in Rail Transport (45),Lime (37), and Quarries and Sandpits (14), all of which are inputs purchased bythe iron and steel industry.ij Smelting and Refining (26): As would be expected a large increase in BaseMetals (4) is induced via an obvious backward linkage. Minor increases are

5. This statement is based on the economics literature on the 'theory of second best' as firstdeveloped in Lipsey and Lancaster, 'General Theory of Second Best'.

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60 61

caused in Uranium (5), Gold (7), Services Incidental to Mining (15), Lime (37),Metal Casting and Extruding n.e.s. (29), and Utilities (50), all of which aredirectly or indirectly inputs into Smelting and Refining.

iii Copper and Alloy Rolling (28): Inputs increase here substantially in BaseMetals (4), Smelting and Refining (26), and Metal Casting and Extruding n.e.s.(29). All of these may be seen from the input-output tables to be large direct orindirect inputs into Copper and Alloy Rolling. Other inputs less significantlyincreased include Uranium (5), Gold (7), Services Incidental to Mining (15),Lime (37), and Utilities (50).

iv Metal Casting and Extruding n.e.s. (29): This industry significantly in­creases Base Metals (4) and Smelting and Reflning (26), and by a lesser amount,Uranium (5), Gold (7), Services Incidental to Mining (15), Aluminum Rollingand Extruding (27), Truck Transport (46), Other Transport and Storage (48),and Utilities (50). These increases are all to be expected due to the direct orindirect linkages.

v Metal Fabricating (30): This industry strongly increases only Iron and Steel(25), and increases by minor amounts Iron Mines (4), Aluminum Rolling andExtruding (27), and Metal Casting and Extruding n.e.s. (29). This, of course, isa higher stage of processing than the previous ones listed so is expected to havea strong backward linkage.

vi Other Non-Metallic Mineral Product (38): Industries whose outputs increasesubstantially include Cement (36), Quarries and Sandpits (14), and Utilities(50). In addition, Asbestos (I 0), Gypsum (II), Lime (37), Rail (45) and Truck(46) transport increase slightly.

Overall, an expansion of the processing industries tends to increase outputsin the mining industries and in the prior processing industries as well as Utilities(50) and some transport industries. However, as in the case of expanding miningindustries, there are increases in other industries which are not so easily ex­plained by direct linkages. These include especially Construction (43) whichbenefits from all processing industry expansions except Metal Fabricating (30);Owner-Occupied Housing (52) which benefits from all but Smelting and Refining(26) and Copper and Alloy Rolling (28); and Education, Hospitals, and Health(54). As earlier, the source of the benefit is likely to be found in the fact thatthese industries are labour-intensive and benefit from the reduced wage-rentalratio. In addition, another labour-intensive service industry benefiting from theexpansion of some processing industries is Wholesale and Retail Trade (51).

Notice, finally, that in general the industries benefiting from the expansionof both the mining and processing industries do not include other manufacturingindustries. They are mainly primary and service industries, as well as utilities andconstruction.

62

INDUSTRIES WIIOSF UU I'I'UTS CuNTRACT

The pattern of industries advcrsely affected by expansion of processing industriesis remarkably similar to those affected by the mining industries and for much thesame reasons. We need therefore provide only a cursory summary of them here.Those most strongly reduced in most cases continue to beLeather, Textiles, andClothing (20), Machinery (31), and Motor Vehicles (32); as before this is due tocapital-intensity and exchange rate effects. Metal Fabricating (30) is next moststrongly affected because of its capital intensity and the capital intensity of itsinputs. Then, Agriculture (1), Petroleum and Gas Wells (9), Food and Feed

.J 16), Other Electrical Products (35), Chemicals (41), and Miscellaneous Man­ufacturing (42) all are fairly strongly reduced as in the case of mining expansion.

. Once again, ~to be c~tal-intensive or highly tradeable manufactur­ing industries, Agriculture (I), Petroleum and Gas Wells (9) or industries usingcapital-intensive inputs that are discriminated against most strongly. These arethe industries which would have to contract if an expansion in processing ofminerals in Canada were to be induced.

THE WAGE RATE, THE EXCHANGE RATE, AND THE WELFARE INDEX

The effects of increasing mineral processing on the wage rate and exchange rateare similar to those obtained when the mining industries expand. The wage-rentalratio in the economy is reduced when each of the processing industries is ex­panded. This reflects the capital-intensi ve nature of the processing industries andof the industries which are related to the processing industries by backwardlinkages. The price offoreign exchange also falls in every case. This is due to thecombined effect of the initial exogenous export increase and the depressedwage-rental ratio which beneficially affects some import-competing industries.

The effects on the welfare index tend to be slightly stronger in the proces­sing case than in the mining case. We find that the welfare index rises in everycase except that ofSmelting and Reflning (26) indicating that society wouldbenefit from an expansion of these processing industries. Of course, we have noway of knowing to what extent the reduced welfare from increasing smelting andrefining is due to aluminum smelting and refining as opposed to the smelting andrefining of domestically-produced minerals. One conjecture as to why the wel­fare index increases in the other cases is that, as we shall find in the next chapter,the existing tax and tariff structure tends to discriminate against processing in­dustries, thereby making their outputs lower than they otherwise would be.Therefore, on 'second best" grounds, any measure which increases output inthese industries should improve welfare.

Increasing Suppl ies of Labour and Capital

The expansion experiments described above were performed assuming fixed

63

total supplies of labour and capital. Expansions in economic activity can alsooccur through increases in the available supplies of these primary resources. Toassess the impact of such increases we have computed the general equilibriumchanges occurring from expanding the available supplies of labour and capitalseparately. The results thus indicate how resources would be allocated if theexisting technology, demand conditions, world supply, and demand functionswere combined with the larger amounts of resources.

Similar sorts of influence are at work here as above. For example, the ad­dition of, say, capital to the economy would make capital relatively less scarcecompared to labour, thus causing the wage-rental ratio to rise. Capital-intensiveindustries would be favoured as would those which use as inputs products ofother capital-intensive industries. With higher incomes the demand for importswould rise, thus tending to cause the price of foreign exchange to rise. Theprice of foreign exchange could also be influenced by the change in relativeprices caused by the rise in the wage-rental ratio. If export and import­competing industries are labour-intensive, they will be discriminated against,thus causing the price of foreign exchange to rise even further. We shall brieflyconsider the workings of these influences by discussing the impact of adding tothe capital and labour supplies in turn.

THE EFFECTS OF INCREASING THE CAPITAL STOCK

In this case, the general equilibrium was shocked by increasing capital by $1billion (about 7.5 percent of the original capital stock). As would be expectedthe rise in available capital causes the wage-rental ratio to rise. Oddly enough,the magnitude of the rise is approximately 7.5 percent, exactly the same as theincrease in capital.

The price of foreign exchange rises by 4.5 percent, probably reflecting thetwo influences mentioned above. Incomes rise due to the increase in capital re­sources and this induces an increase in imports. But, in addition, the rise inwage-rental ratio discriminates against labour-intensive industries many ofwhich are engaged in producing import-substitutes (such as textiles and foodproducts). Another way to look at the rise in the price of foreign exchange is aspreading to the rest of the world of some of the advantages of a growth in realoutput in Canada. This transmission mechnism is well-known in the theory ofinternational trade and is explored in depth by Johnson. 6

Even though the supply of capital increases and labour stays the same sothat the economy's production possibil ities expand, the output in some indus­tries actually falls in the new equilibrium. The output of coal falls by 27 percent- much of it apparently caused by a very large rise in imports. (Imports rise by$19 million and output falls by $14 million.) Because the economy relies rela-

6. H.G. Johnson, InternationaL Trade and Economic Growth (London: George Allen and Unwin,Ltd., 1958).

64

tively heavily on imports for this industry, the rise in import demand has astrongly detrimental effect on the industry, The other industries whose outputsfall include Other Transport Equipment (1,56 percent), Leather, Textiles, andClothing (0,20 percent), and Gold (0.18 percent). None of these changes is sig­nificant and in all cases they appear to be related to changes in trade patterns.The first two changes are brought about by a large rise in import substitutes,and the last is caused by a large fall in exports.

All other industry outputs rise but some rise much more substantially than"'others. Petroleum and Gas Wells rises by over 14 percent, partly due to the be­

neficial effect of a higher wage-rental ratio since it is a capital-intensive indus­try. Also, imports of this product fall substantially due to the rise in the price offoreign exchange. Three other industries closely related to Petroleum and GasWells benefit substantially from the rise in capital. They include PipelineTransport (9.37 percent), Other Petroleum and Coal Products (8.92 percent),and Petroleum Refining (6.17 percent). The other industry showing a strong in­crease is Other Non-Metal Mines which rises by nearly 14 percent. Other thanthis latter industry, the mining industries do not fare particularly well eventhough they are capital-intensive and would benefit from the rise in the wage­rental ratio. Presumably they are hurt by the rise in the price of foreign ex­change which discriminates against their exports.

In absolute terms the industries which fare best from an increase in availa­ble capital are larger industries including Finance, Insurance, and Real Estate,Owner-Occupied Housing, Wholesale and Retail, Construction, and Food andFeed. The mere size of these industries militates in favour of large changes intheir outputs. Slightly less sizeable absolute increases occur in Agriculture, Pet­roleum and Gas Wells, and Other Services.

Overall, the industries benefiting tend to be dominated by service indus­tries, Petroleum and Gas Wells, and industries related to the latter. This is truenot only of changes in output but also of changes in capital use since the latterclosely parallels the former.

THE EFFECTS OF INCREASING THE LABOUR SUPPLY

The labour supply was increased exogenously by 100,000, or about 2 percentof the original labour force. The results obtained from this experiment were inmany ways the mirror image or opposite of those attained when capital in­creased. The wage-rental ratio of course fell, due to the increased availability oflabour. As with the previous case, the magnitude of the fall was the same inpercentage terms as the increase in labour supply, 2 percent. Thus, labour­intensive industries would be afforded some advantage,

The exchange rate surprisingly fell by 1.2 percent despite the induced in­crease in imports caused by a rise in incomes. The apparent cause of the fall is(hat the fall in the wage-rental ratio assists many import-competing industries

which expand, replacing imports. The reduction in the price of foreign ex­change makes it more difficult for export industries to sell on world markets.

The total outputs of all industries increases with the increase in labour re­sources except for six industries which fall - Petroleum and Gas Wells (2.08percent), Other Non-Metal Mines (1.86 percent), Pipeline Transport (1.02 per­cent), Base Metals (0.23 percent), Asbestos (0.20 percent), and Gypsum (0.09percent). In absolute terms only the decrease in Petroleum and Gas Wells ap­pears significant ($23.4 million). This is just the opposite of what happenswhen capital is augmented. Here, Petroleum and Gas Wells are hurt by thecombination of a lower wage-rental ratio which adversely affects capital­intensive industries and thc fall in the price of foreign exchange, which dis­criminates against exports and favours imports. Pipeline Transport obviously.falls because of its direct linkage to Petroleum and Gas Wells. The other indus­tries, all mining, are hurt for much the same reasons as Petroleum and GasWells.

The industry which rises the most is Coal (nearly 16 percent), once againthe opposite of the previous case. This is apparently caused by the fall in thewage-rental ratio as the data show the price of coal output to fall relative to allother industries. Other industries to benefit significantly in percentage termsfrom the rise in labour supply are all manufacturing industries - Machinery(3.10 percent), Leather, Textiles, and Clothing (2.77 percent), MiscellaneousManufacturing (2.73 percent), Other Transport Equipment (2.70 percent),Electrical Appliances (2.66 percent), and Motor Vehicles (2.65 percent). Butnone of these is significantly greater than the general rise in overall productionin the economy due to the additional factor availability.

The absolute increases in industry outputs are much larger for some of thelarger industries. The largest increases include Construction($153 million),Wholesale and Retail ($140 million), Leather, Textiles, and Clothing ($90 mill­ion), Motor Vehicles ($86 million), and Other Services ($78 million). These arein line with the increase in demand to be expected merely due to the rise in in­comes in the economy. And, as above, increased labour allocations tend toparallel increased outputs.

SUMMARY OF EFFECTS ON MINERALS

Coal and Other Non-Metal Mining are the only mining industries which arestrongly affected by changing supplies of capital and labour. Perhaps surpris­ingly, an increased labour supply caused slight decreases in a few mining indus­tries. In general, however, the mineral industries were relatively little affectedby increases in the supplies of capital and labour, by comparison with other in­dustries.

66

6. The Effects of the Canadian Tax and Tariff Structureon the Mining Industries

Introduction

Governments levy a wide variety of taxes and tariffs to raise revenues to fi­nance the public sector. The choice of the mix of taxes is dictated by manyconsiderations - income distribution, regional effects, ease of collection, sizeof the tax base, etc. As a result tax rates falling on different commodities or ondifferent sources of income will differ. lOur interest in the tax and tariff struc­ture of the Canadian economy stems from the fact that, because the rates differover different industries, the allocation of resources to industries will be dis­torted as compared with what the allocation would be if t~ rates were thuamei[Ulll .nEiustries We shall refer to the latter as a neutral tax system.In this study, we have included three broad classes of such distortions-tariffs, commodity taxes, and capital taxes. Tariffs are levied by the federalgovernment on the imports of the products of various industries whether theseare used for final demand or as intermediate inputs. They affect resource alloca­tion by increasing the prices of imported goods for Canadian users. This in­duces several sorts of effects, directly and indirectly, on the outputs of variousindustries. A listing of these effects include:

i Those items subject to a tariff will have higher domestic prices. Demand forthese products may be expected to fall in total, but domestic production willrise since domestic producers will be willing to produce more at higher prices.Resources are therefore diverted into import-competing industries, especiallythose with the highest tariff rates.ii Industries using imported goods as intermediate inputs will find their costshave increased due to the increased price of inputs. Resources will thereforetransfer out of industries whose costs have been increased relatively largely bythis route. In addition, through the input-output system a rise in the price of animported input will affect not only those industries using it directly but alsothose industries using it indirectly (those which use an input whose productionuses the imported input, etc).iii The tariff, by substituting domestic production for imports and reducingthe overall demand for importable goods, will generally cause the price of

I. The extent of these differences is apparent from observing the tax rates in table II, appendix II.

67

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foreign exchange to fall. This makes our exports appear more expensive toforeigners so that export sales will fall, causing a reallocation of resources outof export industries.iv The reallocation of resources induced by the above effects will generallycause a reallocation from industries which on balance use relatively more ofone primary factor of production than the other. For example, if resources areinduced to move out of relatively labour-intensive industries, labour will be­come less scarce relative to capital, and the wage-rental ratio will fall. By thedirection in movement of the wage-rental ratio, we shall be able to tellwhether the tariff tends to favour labour or capital.

All of the above effects occur simultaneously and thus may cancel or aug­ment one another. Our computations tell us the overall impact of the tariffstructure when all the effects are taken into consideration. The computationalprocedure whose results are reported below is to remove the tariff distortions al­together, compute a new general equilibrium system and compare it with thecontrol solution. It ought to be apparent from the above that knowledge of thetariff rates themselves is not sufficient to tell us much about their allocative ef­fects.

Commodity taxes, as used in this study, include all taxes levied by federaland provincial governments on sales of commodities, except for the provincialsales taxes for which data were not available. In any case, the latter may beconsidered to be fairly non-distorting because the rates do not differ much overvarious industries. The federal commodity taxes are the manufacturing sales taxand excise taxes on tobacco and alcohol. Provincial commodity taxes includeexcise taxes on fuel, tobacco, and alcohol. As data were not available to sepa­rate these taxes out, our computations were done for the commodity tax struc­ture as a whole.

The distorting effects of commodity taxes arise by much the samemechanisms as above except that instead of falling upon imports, they fall uponall domestically purchased products whether produced at home or abroad.Commodity taxes raise the price purchasers pay above the price producers re­ceive, the difference depending upon the magnitude of the tax rate. The relativeprice paid by purchasers will increase more on those transactions bearing ahigher tax rate, thus inducing a reduction in demand which in turn causes a re­source reallocation out of that industry and into others. In addition, there areadverse effects on the outputs of industries which purchase inputs which aresubject to a high commodity tax rate, much as in the tariff case as outlinedabove. Furthermore, the overall effect of the commodity tax system on thewage-rental ratio and on the exchange rate will indicate whether the commoditytax system as a whole tends to favour labour or capital on the one hand andimport-competing or export industries on the other.

68

The capital tax payments, as defined for the purposes of this study, in­clude both federal and provincial corporate income tax payments and provincialmining and logging taxes. They drive a wedge between the net and the grossreturns to capital. Since we assume that in a competitive economy the net returnto capital is the same in all industries, 2 the capital tax makes the required grossreturn on capital higher for those industries with higher tax rates. Those withsuch higher gross rentals will have higher factor costs and thus higher prices. 3

Demand will be reduced and resources will be shifted out of these industriesand into others. In addition, industries which purchase inputs from industrieswith higher capita] tax rates will find the price of their inputs increased moreand will be forced to increase their prices, thus causing a reduction in demand,and so on back through the input-output relations. As with the other taxes wecan tell from the overall impact of the capita] taxes which industries arefavoured and discriminated against and which factor (labour or capital) isfavoured relative to the other.

All tax distortions other than the above three sorts have been neglected.These include the personal income tax, property taxes, provincial retail salestaxes, and estate duties. The data on how these taxes vary over industries is notavailable. ]n any case, it seems likely that they are all relatively non-distortingcompared with those we have considered. The rates probably do not systemati­cally discriminate very much against some industries as opposed to others.

The net effect of the package of distortions introduced by the various taxmeasures was estimated. A summary of the more important results obtained isshown in table 10. This table shows the effects (as measured by the absoluteand percentage changes in outputs in the mining and processing industries, thewage rate, the exchange rate, and the true welfare index) of eliminating the dis­tortions due to tariffs, commodity taxes, and capital taxes, singly and together.The following sections discuss the elimination of each of these types of distor­tion, and indicate any other significant effects that occur which are not apparentfrom table 10.

Distortions due to Tariffs

Examination of the first column in table 10 indicates that the elimination oftariff distortions causes an increase in total output in all mining industries. Inother words, the existing tariff structure discriminates against the mining indus-

2. We are forced to ignore two important sources of differences in the net rate of return to capitalin this study due to a lack of data. First, elements of monopoly tend to increase the rate ofreturn to capital above that in competitive industries. Second, industries with greater riskfactors will require larger rates of return to the extent that risk-pooling is not possible throughconglomeration or diversification of financial portfolios.

3. The amount by which higher capital costs will cause higher prices depends upon how importantcapital is as an input; that is. how capital-intensive is the industry in question.

69

tries. This is particularly true of Coal, and less so of Other Non-Metal Mines,Iron, Base Metals, and Quarries and Sandpits, all of which increase by over 10percent when the tariffs are removed. Coal rises by 163 percent or$86,762,000. There are several reasons why this bias occurs. The most obviousone is that the imposition of tariffs causes the Canadian dollar to be worth morethan it otherwise would (the price of foreign exchange is lower). The purposeof the tariff is to protect import competing industries, but at the same time itwill discriminate against exporting industries. Since by and large the mining in-

.. dustries tend to be heavy exporters, the fall of the price of foreign exchange dueto the tariff increases the price of exports to foreigners, thus reducing demand.

There may be other less direct ways in which the tariff structure affectsmining production. From table lOwe see that the removal of tariffs causes thewage-rental ratio to fall indicating that the tariff structure favours labour­intensive industries relative to capital-intensive ones. Mining industries tend tobe the latter. Also, the mining industries may be purchasers of intermediate in­puts which are subject to tariff protection such as manufactured products. Thisincreases the price of inputs and causes a reduction in mining production.

It is also of some interest to see how the tariff structure affects the incen­tive to process minerals in Canada rather than export them in the raw form.Table 10 shows how the total outputs of the six processing industries wouldchange if the tariff structure were not in existence. First stage processing,Smelting and Refining, is heavily discriminated against by the tariff. Its totaloutput would rise by $271 .6 million (13.29 percent) if the tariffs were re­moved. Unfortunately, this industry includes aluminum smelting and refiningwhich does not process minerals obtained from Canadian mining industries andwe have no way of knowing the extent to which the above result is due to theprocessing of aluminum as opposed to domestically produced minerals. Sincethe inputs into aluminum smelting and refining are imported, the presence ofthe tariff structure would assist the industry by making imports cheaper via alower price of foreign exchange (assuming that the imports of bauxite them­selves were not subjected to a tari ff). Therefore, one would expect a priori thatthe tariff structure would favour aluminum smelting and refining and, if so, thiswould mean that the bias against smelting and refining of the minerals procuredfrom Canadian sources would be even greater than indicated. The other proces­sing industries hampered by the tariff are Iron and Steel and Metal Casting andExtruding n.e.s. These, however, appear to be only mildly discriminatedagainst and the reason is by no means obvious .

On the other hand, Metal Fabricating appears to be heavily favoured bythe tariff structure. This may arise because the outputs of this industry are usedto a great extent as inputs into industries which are favoured by the tariff struc­ture such as certain manufacturing industries. Copper and Alloy Rolling is alsoslightly favoured perhaps for much the same reason. The effect on the other

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processing industry, Non-Metallic Mineral Products, is insignificant. There­fore, the overall effect of the tariff structure on processing is a mixed bag, tend­ing to discriminate against first processing but to favour later stages of proces­Sing.

While the results are not shown in table 10, we can briefly indicate the ef­fects of the tariff structure on other industries. As would be expected the indus­tries which are favoured significantly are manufacturing industries. They in­clude the following: Alcohol, Tobacco, Rubber, Textiles, Furniture, ElectricalAppliances, Other Electrical Products, and Miscellaneous Manufacturing.These are all industries which are provided with strong tariff protection. Sostrong is the protection in the case of Alcohol that the removal of the tariffforces the industry out of business altogether. On the other hand there are somemanufacturing industries which are not favoured by the tariff structure, includ­ing Machinery, Motor Vehicles, Other Transport Equipment, and Other Pet­roleum and Coal Products. The case of Motor Vehicles is obviously a result ofthe auto pact of 1965 with the USA. We find that the removal of the tariffcauses automobile production to rise by 24 percent, a surprisingly large figure.Finally, Petroleum and Gas Wells tend to be moderately discriminated againstby the tariff structure (8.7 percent). Overall, the tariff structure tends to dis­criminate against primary industries and some manufacturing industries, infavour of other manufacturing industries, but not to have a strong bias eithertowards or against the service industries.

The final significant result to be discussed is the effect on the welfareindex of removing tariffs. The index falls by .75 percent indicating that thetariff increases welfare slightly rather than decreasing it. This is a rather surpris­ing result given the usual economic arguments in favour of free trade andagainst the distorting effects of tariffs. There are, however, at least three expla­nations of this result (all of which occur simultaneously).

First, tariffs are not the only distortion in the model. We also have com­modity taxes and corporate taxes. It is a well-known proposition in the theoryof second best that the removal of some distortions in an economy with otherdistortions need not improve economic efficiency or welfare. The tariffs andtaxes may provide offsetting distorting effects on resource allocation so thatremoving one may cause resource allocation to go further away from the op­timum.

Second, since we are concerned with the welfare of Canadians only andnot that of the rest of the world, it is possible that imposing tariffs can make theformer better off at the expense of the latter. This is known as the optimal tariffargument in the theory of international trade. 4 The idea is that imposing a tariffand reducing Canadian demand for imports would induce foreign sellers to re-

4. See R.E. Caves and R. W. Jones, World Trade and Payments (Boston: Little, Brown andCompany, 1973).

72

duce the price of imports, thus improving Canada's terms of trade. Canadawould be exploiting whatever monopoly power it had in world markets.

Finally, the rise in welfare from imposing the tariff may in part reflect ashift of labour into wage industries which are favoured by the tariff.

Distortions due to Commodity Taxes

The influence of the existing commodity tax distortions on outputs in the min-.. ing and processing industries, the wage-rental ratio, the exchange rate, and the

welfare index are shown in the second column of table 10. As is obvious fromthese results, the commodity tax structure has a considerably different effect onresource allocation than does the tariff structure.

Consider first the twelve mining industries. The commodity tax structureslightly favours all of them except Iron, Gold, Coal, Gypsum, and Lime. How­ever, the effect on none of these industries is very significant. Of those dis­criminated against only Iron and Coal have output changes of over I percentwhen the taxes are removed (1.57 percent and 1.08 percent respectively). Themining industries favoured most are Uranium, Salt, and Other Non-MetalMines (whose output falls by 2.48 percent, 2.60 percent, and 3.51 percent re­spectively when the taxes are removed). All others have output changes of lessthan 2 percent. Overall, one would have to conclude that the commodity taxstructure has little effect on the output of mining industries relative to the rest ofthe economy.

A similar result holds for the processing industries. Three are slightlyfavoured and three are slightly discriminated against by commodity taxes.However, only one has an output change of over I percent; Other Non-MetallicMineral Products has an output rise of 1.15 percent when the tax is removed.This would indicate that commodity taxes discriminate neither in favour of noragainst processing of minerals in Canada.

The commodity tax structure does have considerable impact on resourceallocation outside the mining and mineral processing sectors. Our computationsindicated that commodity taxes strongly discriminated against the following in­dustries: Petroleum and Gas Wells, Alcoholic Beverages, Tobacco, and OtherPetroleum Products. These are to be expected because of the extremely largespecific excise taxes levied on products of these industries. In addition, the taxstructure discriminated mildly against Motor Vehicles and Pipeline Transport.Both of these may be explained by the induced effects of the excise tax ongasoline. Those industries favoured include all the service industries and, to alesser extent, Communications, Utilities, and Construction. Most manufactur­ing industries are neither strongly favoured nor discriminated against.

The reduction in the wage-rental ratio when the commodity tax is elimi­nated indicates that the tax favours labour-intensive commodities slightly over

73

I

capital-intensive ones. Labour becomes more abundant when the tax is re­moved, reflecting a decline in outputs of more labour-intensive industries (suchas services).

Of more interest is the effect of the commodity tax structure on the ex­change rate. The price of foreign exchange falls by 2.2 percent (i.e., the Cana­dian dollar appreciates) when the commodity tax distortions are eliminated.This indicates that the tax structure tends to disfavour exporting and import­competing industries. This, of course, is directly contrary to the purpose of thetariff structure. It appears, therefore, that the commodity tax structure is par­tially offsetting the intended results of the tariff structure, undoubtedly uninten­tionally.

Finally, removal of the commodity taxes causes the welfare index to riseby almost I percent. This is the 'deadweight loss' of the commodity tax struc­ture. However, as indicated in the previous section, this welfare change mea­sure takes into consideration some distortions other than that of the commoditytaxes. There are tariff and commodity tax distortions and also differential wagerates over industries. Therefore, not too much significance may be attached tothis deadweight loss measure.

Distortions due to Capital Taxes

From table 10 we see the effects of eliminating capital tax distortions. First ofall, observe from table II that the capital tax rates in mining industries tend tobe relatively low compared with that of the manufacturing industries, butsl ightly above the national average of all industries (14 percent).5 We are there­fore not surprised to find that the capital tax discriminates against all mining in­dustries except two, Iron and Coal. Coal is particularly sensitive, its output faI­ling by 47 percent when the tax is removed. Iron is much less affected (4 per­cent) when the tax is removed. The reason for these two findings is not hard touncover. Along with Petroleum and Gas Wells, these two industries had thelowest capital tax rates of all industries in 1966.

The tendency of the capital tax to discriminate against all other mining in-

5. Recall as well that capital taxes here include not only the federal and provincial corporation

income taxes but also provincial mining taxes which, of course, affect only the miningindustries. But, even with the mining taxes included, capital tax rates are still lower than thosein some other industries, especially in manufacturing industries. Note, however, that these

capital tax rates were computed using 1966 data. Since that year, major revisions of thetaxation structure have taken place at both federal and provincial levels, and the results of theanalysis would clearly be modified as a result. Although the revisions cannot be examined indetail here, their main thrust can be deduced. The net effect of the changes is that in most

jurisdictions the mining industries are more heavily taxed than in 1966. The conclusion that

mining is discriminated against by both the capital taxes and the total tax/tariff structure

therefore holds with equal or greater force at present.

74

dustries is not difficult to explain. First, they have higher capital tax rates thanthe national average. Second, they are relatively capital-intensive so that theprice of capital figures strongly in the price of outputs of these industries. Anyfactor inducing a rise in returns on capital has a fairly large influence on priceand thus on demand. Furthermore, mining industries purchase significant inputsfrom industries which are heavily taxed and are used as inputs into heavilytaxed ones, thus indirectly feeling the impact of taxes on these other industries(especially manufacturing). Finally, exchange rate effects may be important:

.. see below. The magnitude of the discriminatory effect on the mining industriesis small except for Other Non-Metal Mines (18.36 percent). Gypsum and SaltMines are slightly affected (3.26 percent and 4.42 percent), and Base Metal andAsbestos Mines are less so (2 percent and 2.3 percent).

On the other hand, the mineral processing industries are all discriminatedagainst moderately strongly, especially later stage processing. The least af­fected is Smelting and Re.fining, the first processing stage, whose output rises 3percent when the tax distortion is removed. However, this effect may be duemainly to the inclusion of aluminum smelting and refining. Raw material inputsare imported into Canada and therefore their price depends upon the exchangerate. When the capital tax is removed the price of foreign exchange falls,thereby making imports less expensive, favouring import-using industries.Therefore, the capital tax itself discriminates against import-using industriessuch as aluminum smelting and refining and this may account for at least partof the discrimination against Smelting and Refining. The reasons why otherprocessing industries are discriminated against are similar to those of the min­ing industries - they have a relatively high rate of tax, they are fairly capital­intensive, and they use and are used in industries which are fairly heavily taxed(e.g. manufacturing).

The effect of the capital tax structure on the exchange rate is of considera­ble interest. When the tax is removed, the Canadian dollar appreciates by 13.6percent indicating a very strong bias against export and import-competing in­dustries. This indicates that, like the commodity tax structure, the capital taxappears to work at cross-purposes to the tariff, thus removing much of the de­sired impact of tariff protection. In addition, from the point of view 01' the re­source industries, the discrimination against exports is important. This ex­change rate effect may, for example, have considerable significance in explain­ing why the processing industries are discriminated against.

Other industries discriminated against by the capital tax include most man­ufacturing industries - especially Alcohol, Machinery, Motor Vehicles,Chemicals, and Miscellaneous Manufacturing. Those industries favoured most

strongly are Petroleum and Gas Wells, Other Petroleum Products, andFinance, Insurance, and Real Estate. Most service industries arc favoured as is

75

"~,

~,

AgriCIIlture. To the extent that the tarin I~ ~UI posed to foster manufacturing in­dustries, this again illustrates how the corporate tax is working at crosspurposes.

The two other pieces of information obtained from table 10 are the effecton the wage-rental ratio and on the welfare index. The wage-rental ratio falls by12.5 percent indicating, as expected, that the capital tax works strongly infavour of labour-intensive industries and against capital-intensive ones. In fact,labour's share of GNP before and after elimination of the capital tax stayssteady at 46 percent indicating that capital bears almost all of the burden of thetax. 6 The welfare index fell by 0.58 percent when the tax was removed, indi­cating that the capital tax actually caused welfare to rise, given the existence ofother tax/tariff distortions and the labour market imperfections. In any case, themagnitude of this welfare change is fairly small, indicating that the size ofdeadweight losses is small.

The Effects of Eliminating All Tax and Tariff Distortions

Each of the previous cases considered only the effects of eliminating one of thethree types of tax/tariff distortions. To obtain an idea of how the entiretax/tariff structure affects resource allocation and particularly the mining indus­try we have computed a general equilibrium solution with all commodity andcapital tax and tariff distortions removed. The results as they affect mining andprocessing are presented in the final columns of table 10.

The interesting finding to emerge from these results is that the tax/tariffstructure discriminates against all mining industries, some by substantialamounts. Coal Mines, for example, rises by 140 percent when the distortionsare removed, mostly due to the detrimental effect of the tariff. Other Non-MetalMines increase by 47 percent when the distortions are removed. Other signific­antly affected mining industries include Base Metals (16 percent), Gypsum (15percent), Iron (15 percent), Quarries and Sandpits (II percent), and Asbestos(II percent). Of the remainder, only Cement is affected insignificantly. Theothers are increased by about 5 percent or more. Although the exact amounts ofchange are of course subject to the exogenous parameters read into the model, oursensitivity analyses have indicated that results obtained are of the same order ofmagnitude as those given above. Therefore, it appears that the mining industryis fairly strongly discouraged by the set of taxes and tariffs levied by federaland provincial levels of government in 1966.

Furthermore, much of the same pattern arises for the processing industries.All are discriminated against by the tax and tariff distortions except for Metal

6. For a more technical discussion of this point, the reader is referred to A.C. Harberger, 'TheEfficiency Effects of Taxes on Income from Capital', in M. Krzyzniak, ed. Effects ofCorporationtncome Tax (Detroit: Wayne State University Press, 1966).

76

F(lhricatill~, wh()~ , oUlpUI lall~ by over 7 percenl when the distortions arc re­moved. But I/Ieltill~ (llId R(/illillg, Iron alld Steel, and Metal Casting alld Ex­tmding lI.e.s. all incrca'e significantly when the distortions are removed (by15.5 percent, 12.1 percent, and 11.4 percent respectively). In these cases, it isdue mainly to the detrimental effects of both tariffs and capital taxes. The re­maining two industries, Copper and Alloy Rolling and Other Non-MetallicMineral Products are affected only to a minor extent. We have already discus­

sed some of the reasons for these above.Other industries whose outputs rise by a sizeable amount when all taxi

tariff distortions are removed are: Petroleum and Gas Wells, Aluminllm Rollingand Extruding, Machinery, Motor Vehicles, Other Transport Equipment. Pet­roleum Products, Coal Products, Chemicals, Water Transport, and PipelineTransport. Most of these industries are in the manufacturing sector, and manyare linked to mining industries (forward or backward). Agriculture, Forestry,and Fishing are discriminated against to a lesser extent. Broadly speaking, thetax/tariff distortions tend to discriminate against primary industries and mostmanufacturing industries.

Those industries favoured by the distortions substantially include Alcohol(which has strong tariff protection more than offsetting tax discrimination), Tex­tiles (due also to the tariff), Furniture, EleClrical Appliances, Other ElectricalProducts, Owner-Occupied Housing, and Finance, Insurance, and Real Estate.In general all service industries, Communications, Utilities, COllstruction, andsome manufacturing industries are favoured by the distortions. The effect onmanufacturing is mainly due to tariff protection.

The wage-rental ratio falls by 15 percent when the tax/tariff distortions areeliminated. This implies that overall taxes and tariffs tend to favour labour­intensive industries relative to capital-intensive ones. This is not surprising inview of the fact that each of the distortions in itself favours labour.

The influence of the tax/tariff structure on trade is indicated by the fall inthe exchange rate by 9.45 percent when all taxes and tariffs are removed. Th isoverall appreciation of the Canadian currency is of some interest for policyanalysis, for it shows that the commodity and corporate tax structures morethan offset the protective influence of the tariff structure, especially on manymanufacturing industries. Tariff policy is unwittingly being completely frus­trated by other policy instruments.

Finally, the existence of the tax/tariff structure surprisingly increases wel­fare by almost I percent. This must be due to a combination of two influences.For one, the burden of the tariff is being to some extent passed on to foreignersvia improved Canadian terms of trade (the 'optimal tariff' argument). Also, thewage rate differentials amongst industries are reflected in the welfare change.There must be a net flow of workers from low wage industries to high wage in­dustries due to the distortions. Since we have not included any disutility of

77

working in high wage industries in our wl'llare ind 'X. Ihe ben '!'il:- 01 Ih' 1<1'/tariffs structure may be overestimaled. In any case. the deadweighl loss 01" Ihedistortions introduced by the entire structure 01" laxcs and tarilfs is 01" insignil"ic­ant size compared with the amount of attention lhat is devoted to it in the litera­ture. This is consistent with studies of the deadweight loss of taxes in the U.S.economy.7

7. See. for example. A.C. Harberger. 'Taxation, Resource Allocation and Welfare' , in NationalBureau of Economic Research and the Brookings Institution, The Role ofDireCT and IndirectTaxes in the Federal Revel/LIe SysTem (Princeton: Princeton University Press, 1964), pp.25-75, for a measure of the deadweight loss due to the income tax and Harberger, 'EfficiencyEffects of Taxes on Income from Capital'. for the deadweight loss of the U.S. corporationincome tax.

78

Appendix I The General Equilibrium Model

The mathematical model and computational method are derived in this appen­dix. The model is a general equilibrium, static, competitive, neoclassical, openeconomy with fixed factor supplies and some fixed distortions (taxes, tariffs,wage rate differences over industries).

Notation

Unsubscripted variables are vectors or matrices as the case may be; a primedenotes a transpose; all unprimed vectors are column vectors; a dot betweentwo matrices refers to the operation of multiplying each element of one by thecorresponding element of the other; a circumflex represents a diagonal matrix.For all the variables listed below, the corresponding vector or matrix uses thesame notation with the subscript(s) deleted. Variables are listed in the order inwhich they appear.i,j = subscripts used to denote industries (i ,j = I , ... ,56)Xi = total output in iL i = labour used in iKi = capital used in iXli = intermed iate input flows from j into iAJi = physical input-output coefficient from j to iPi = producer price of i' s outputtf = final demand commodity tax rate on i (ad valorem)Qi = domestic final demand for iE; = proportion of income spent on QiY = total income from all sourcesM; = quantity of imports of itf" = rate of tariff on M;S = exchange rate (price of foreign exchange)IJ.-i = world elasticity of supply of Mi

E i = quantity of exports of ilJi = world elasticity of demand for E i

EP, MP = shift parameters in world export and import functionsti] = commodity tax rate of Xi] (ad valorem)

79

These 56 equations may be solved for the Xi in terms of all other variables. Thesolution is:

£Xi

{3jAj

7Tj

W

gi'YjiUBT

= wage rate in i= labour use per unit of output in i (= Li/X J= rental rate on capital= capital tax rate in i (based on gross surplus)= capital used per unit of output in i (= Ki/X i)= other value added in i (as a proportion of Pi)= unit matrix= aggregate supply of labour= net capital inflow from foreign sources= exponent on Li in Cobb-Douglas production functions= exponent on Kj in Cobb-Douglas production functions= shift parameter in production functions= profit in i= economy wide average wage rate= ratio of industry wage to w (= wi/w)= exponent on Xji in Cobb-Douglas production function= utility= shift parameter in util ity function= true index

Import Supply and Export Demand FunctionsM i = M? (Pi( I +t!")/s)"i

Ei = EP(Pi/s)'1i

where 0 :S; J-ti < 00, -00 < 'Y/i :S; 0

Pricing RelationsP = ~ Aji (I +t;;) pj + Wi Qi + r( I+tr) k; + Y;Pi

J

These are 56 equations. They may be solved for the Pi in terms of all othervariables. The solution in matrix notation is:

P = [I-(A'(I +t»' - \,]-1 (w' Q + r(1 +tk)'k)

On the right hand s ide of (6) all items are parameters except w, Q , 1', and k.

Market Clearingfor OutpllfSXi = ~ Aij X j + Qi + E; - M;

J

(3)

(4)

(5)

(6)

(7)

X = [I-A]-l (Q+E-M) (8)

Note that market clearing for capital automatically holds by Walras' Law (seebelow).

The Fixed Coefficient Version

The explicit functional forms and the computational solution will be outlinedfor the fixed intermediate coefficient version. The variations required for thevariable coefficient version will be given in the next section.

Production Functions

This is the standard input-output relation referred to in the text of chapter 3.

Market Clearingfor LabourL=~QiXi= Q'X (9)

(Below specific functional forms are given to fi).

Demand FunctionsPie I+t[)Qi = Ei Y

where Ei is a parameter. Note that price elasticities (8Qi/8{Pi( I +tf)}'Pie I +t[)/Qi) are minus one and income elasticities (8Qi/8Y' Y/Qi) are one. (II )

(10)

The above system of equations describes the economy with which we aredeal ing. Given the functional forms of ( I ), (2). (3), and (4) and given theexogenous data (A ij, parameters of fi, Ei, tf, tim, tf, tij, MP, EP, J-tj, 'Y/i, V i) themodel may be solved for the endogenous variables (Wj, Xj, Lj, Kj, Xji, Pi, Qi,Y, M i, Ei, Q i, ki, and 1'). Analytically, the system is reduced to a singleequation (market clearing for labour) in terms of a single variable (the wagerate). This reduction is explained now.

From the properties of the production functions f"i, the unit factor demandsQ i and ki may be solved as a function of the wage-rental ratio under theassumptions of profit-max imizing and competitive behaviour. For example,consider the Cobb-Douglas technology:

Market Clearing/or Foreign Exchange~PIE, - ~Pi( I -It') M, = - C

(2)

( I )

(I inear homogeneous)

(positive marginal products)

(diminishing marginal products)

(complementarity of L i and KJ

Xi = fi(Lj, K i) = Xji/Aji

properties of fi:

i) fi(ALj, AK i) = Afj(Lj, K i)

ii) afi/aLj, 8fi/8K i > 0

iii) 8 2fi/8L j2 , 8 2fi/K i2 < 0

iv) 8 2fi/8L i8K j > 0

80 81

I. We have also used the CES production function in our computations. It may be written:

Xi = A; [8IL; -Pi+ (I -81)K;-PlrIIPI

The unit labour demand is:

Q ; = Ail [8; + (1-8;) (8; r/( I -8;l wlP;/(J+Pjl] I/P;

(20)

( 19)

For any given values of wand r, Pi are determined and (19) becomes a non-Iinear equation in the exchange rates. This equation is solved iteratively on acomputer so that we may treat s as a function of wand r alone in our analyticaldiscussion. This being so, Y in (18) is a function of wand r alone.

Finally, substituting (2) into (8) for Q and the resulting expression into (9)we obtain:

where the right-hand terms represent respectively payments to labour, pay­ments to capital, tariff revenues, other value-added, intermediate tax revenues,final demand tax revenues, and corporate tax revenues. Substituting marketclearing conditions for Xj, (8), and demand functions for Qi, (2), into (17)gives:

Y = wL + rK + (tm.p)' M + [(Y·p)' + p' (l·A) + (tk·k)']

([I-A]-I(E-M») + C + ((tf. p)' + [(Y·p)' + p'(t·A)

+ (tk·k)'] [I-A]-I} Y E/p·(1 +t f)

Solving for Y yields:

Y _ wL+rK+(tm·p)'M+[(Y·p)'+p'(t·A)+(tk·k)'] [I-A]-I(E-M)+C 18)- 1-[(t'·p)'+{(Y·p)'+p'(t·A)+(tk·k)'}[I-A] lE/p·(I+t') (

Careful inspection of equation (I 8) will show that it is a function of w, r, E i andMi. All other variables on the right hand side are either exogenous parametersor functions of these variables. Also, E j and M i are functions of w, r, and theexchange rate s by (3) and (4).

To solve for the exchange rate s as a function of wand r we use the balanceof payments constraint (10). Substituting (3) and (4) in (10) gives:

Since Q , Y, p, E, and M are all functions of wand r, equation (20) is oneequation in the two unknowns wand r. Equation (20) can therefore be solvedfor w in terms of r. Fortunately, that is all that is required. It is a well-knownproperty of general equilibrium systems that they can only be solved for rela­tive prices, the absolute price level being indeterminate. We can treat as ourmonetary unit of account, or numeraire, the rental on capital and arbitrarily setit equal to unity. Then (20) becomes a single equation in a single unknown wwhich can be solved iteratively on a computer.

Having obtained the equilibrium solution for w, it is a simple matter towork backwards and obtain the general equilibrium values for all other en­dogenous variables (Xj, Qj, Li> K i, Ei, M i, Pi> Xu, S, Y). A general equilibriumsolution may be obtained for any set of exogeneous parameters read into thesystem (A, t, t f

, tm, tk

, E, j.t, Y/, V).

-~

( 17)

( 12)

( 13)(3x

Pi ~= r( 1+1/')I

a-XPi~=Wj

A similar expression may be derived for k j. More generally, any linear homo­geneous production function will give unit factor requirements as a function ofthe factor price ratio alone. I We write:

Q;=Q;(w;/r(I+tI'») (15)

ki=kj(w;/r(l+tn) (16)

Since Q i and k i are functions of the wage-rental ratios alone, so must prices Pibe functions of the wage-rental ratios by (6).

Next, we derive an explicit expression for total expenditures. Income forexpenditures is derived from several sources - payments to labour and capital,tariff revenues, tax revenues, other value-added, and net capital inflows. Totalpayments to labour and capital are lWiLi and lrK j • We assume that the labourmarkets are competitive but wage rates differ amongst industries due to non­pecuniary differences in working conditions. Further, we assume that the dif­ferences in wage rates over industries are in fixed proportion such that wtfWj isconstant for all i and j. We can define an economy-wide weighted averagewage rate w such that lWiLj = wL. Each industry wage rate will be linearlyrelated to the economy-wide wage rate, Wi = giW, where gi is a constant. Totalpayments to labour will then be denoted by wL.

The expression for total expenditure is then:

Y = wL + rK + (tm.p)' M + (Y·p)' X + p' (t·A) X

+ (If. p)' Q + (tk·k)' X + C

Divide (12) by (13), solve for Ki in terms of L i and substitute in (II) to yield:

Q.=L/X=A-1{ a;r(l+tn}~; (14)1 I l I {3iW j

where (Xi + f3i = I. Competitive firms maximize profits subject to given priceswhere profits 7Ti= PiXi - wiLj - r(1 +tn K i -l pj (I +tji) Xji. The optimizing

j

first order conditions on L i and K i when (II) is used for Xi are:

82 83

The Variable Coefficient Version

The above system was solved for the case in which intermediate inputs wereused in fixed proportions. When intermediate inputs are used in variable pro­portions, some amendments are required.

Production functions are assumed to be Cobb-Douglas in all inputs:

(21 )

These valucs of AI) arc us 'd as the input-output coefficients in thc solution of(20).

The Welfare Change Measure

In the text of chapter 3, it was stated that the proportionate change in welfare ismeasured as a weighted average of the proportionate changes in final demands:

"This welfare change measure is implied by the demand functions (2). It iswell-known that these demand functions are consistent with a consumer utilityfunction of the Cobb-Douglas form:

U = Bno~i (29)

This is the Cobb-Douglas form where, with constant returns, I Yu + ai + f3i =J

I . Unit demands for labour and capi tal are now functions of w, r, and allintermediate input prices. Proceeding as before with profit maximization, unitfactor demands are derived to be:

Q 1= Aj'(ai/wi)I-<:'i (r(1 +tr)/,8i)~i l1(pj(1 +tj;)/Yji)Yji (22)j

D.U = k EI D.O;U I 01

(28)

where D i is the square-bracketed expression and is a function of wand r. Thesolution to Pi from (25) is obtained by converting the equations to the log-linearform and solving for log p, or, in vector notation:

log P = [I -a']-'[Iog 0 + 1log (I +t) - 1log 1] (26)

where a is the matrix of Yu, :y log (I +t) is the vector of elements IYji logJ

(I +tji), and :y log.y is the vector of elements fYji log Yji' From (26), prices area function of wand r.

The prices thus computed are used in the mode! exactly as in the fixedcoefficient version. Equations (17) through (20) remain exactly as before.However, now the Au used in (8) are no longer fixed but depend upon inputprices. Since the exponents Yu are also the values of input i as a proportion ofthe value of output j in the Cobb-Douglas production technology, we get asimple expression for Au as follows

k 1= A j '(,8;/r( I +1 ;k) '-~;(wi/al)T)1 l1(pj( I +tji)/Yji)Yjlj

Prices, as before, are the sum of payments to primary and intermediateinputs. Using (5), the pricing equations reduce to:

WIQ i + r(l+tr)k i

PI = (I - ~Yji) ( I - Y I)J

Substitution of (22) and (23) into (24) and simplification yields:

Pi = [Aj'(wi/a;)"I(r( I +1r>~I)IJI] l1(pj( 1+ lji)/YjifiiJ

Au = Yu p;!p;( I +lu)

84

(23)

(24)

(25)

(27)

That is, maximizing this utility function with respect to a budget constraint willyield the demand function (2).

The change in utility from a change in final demands is found by firstdifferentiating the natural logarithm of (29) to give:

cI(ln U) = kEi cI(ln 01) (30)

Since all Ej are constant, integrating (30) yields (28) for a discrete change.An alternate, but equivalent, way to proceed is to derive what is called a

"true quantity index' from (29). Using superscripts 0 and I to refer to thecontrol and shock equilibrium values respcctively, the truc quantity index cor­responding to utility functions (29) is:

T = nO"

E' Il101"1 = U'/U" (31)

T may be easily computed from the observed values of Qi and QP.

Walras'Law

It is a straightforward matter to prove that labour market clearing impliescapital market clearing in this model. For simpl icity, we do so in a closedeconomy without taxes. The budget constraint of final demands is:

O'p = wL + rK (32)

Substituting for p from (6),

Q'[I-A']-'(w Q +rK) = wL = rK (33)

Note that the rearrangement of (8) gives:

X'[I-A'] = 0'

85

Therefore, substituting into (33)

X' (w ~ +rK) = wK+rK

From market clearing for labour we know that

X' ~ = L

Therefore, from (34),

X'k = K

That is, the demand for capital equals the supply. This same proof may beextended to open economies with taxes with no difficulty.

86

(34)

Appendix II The Choice and Sources of Data

..The adaptation of the input-output tables to our model and our choice ofexogenous data is the subject of this appendix. As will be discussed below, thedata are chosen in such a way as to make the control general equilibriumsolution exactly replicate the 1966 Canadian economy. That is to say, thecontrol solution yields the same total outputs, final demands, intermediateuses, factor payments, and factor allocations as in the actual economy. In orderto obtain this result we have had to choose our parameter values for production,demand, and world trade functions very carefully. The methods for choosingthem and the sources of the other raw data used are outl ined in the followingsections.

Tariff and Tax Rates

Data on total tariff payments and total commodity tax payments on all transac­tions were obtained from Structural Analysis Division of Statistics Canada.These were converted to rates by dividing the tax payment by the flow to whichit was applied. Thus, tariff rates l tf" were obtained by dividing tariff paymentsfor each industry by the corresponding flow of imports 2 (gross of tariff). Finaldemand tax rates, t{, were obtained by dividing tax payments on final demandby domestic final demands net of the tax for each industry. Exports were notsubject to the final demand tax. Tax rates on intermediate flows, til, were foundby dividing the tax payment on these flows by the corresponding intermediateflow net of the tax. Tax payments out of corporation income were obtainedfrom Corporation Financial Statistics /966 published by the Dominion Bureauof Statistics. To convert these to capital tax rates, 3 tjk, they were divided by

I. The same notation is used here as in appendix I.2. These flows of imports as well as those of final demand, total outputs, intermediate inputs, and

payments to primary factors of production are obtained from the 1966 input-output tablesprepared for us by Statistics Canada. These tables are unpublished.

3. As mentioned in chapter 3, tax payments out of corporate income include both corporationincome taxes of the federal government and the provinces and provincial mining and loggingtaxes. The capital tax rates we calculate are therefore purely fictitious and do not representlegal tax rates. They simply give these tax payments as a percentage of gross surplus.

87

gross surplus from the input-output tables net of the tax payments. 4 Thesecapital tax rates are therefore calculated as a proportion of payments to capitalnet of tax but gross of depreciation. Ideall y, we would Iike to net out deprecia­tion from payments to capital since tax rates are actually calculated net ofdepreciation and also since it is net-of-depreciation rental on capital which isequalized over industries. Since we lack data on true depreciation by industrywe are forced to assume that true depreciation rates are the same over allindustry groups. 5 Then, competition equalizes the gross-of-depreciation rentalrate on capital as well as the net and it makes no difference whether tax rates areapplied on the gross or net basis.

The tariff and tax rates thus calculated are listed in table I I.

Factor Supplies

We have assumed the total supplies of labour and capital to be exogenouslygiven. Labour supply is measured in man-years. The average annual employ­ment by industry was obtained from Structural Analysis Division of StatisticsCanada. 6 Capital would appear to pose grave problems since we have noavailable measures of the stock of physical capital. However, by choosing therental on capital to be our unit of account or numeraire we are able to overcomethis problem. The total return to capital (net of tax) is rK j for industry i. Since r= I by our price normalization, the total return to capital is identically thestock of capital services K j . Data on the return to capital net of tax comes fromsubtracting capital tax payments from the 'surplus' item in the input-outputtables. The aggregate supplies of labour and capital are then simply the sum oftheir uses in each industry. Note that these supplies of labour and capitalinclude only that used in the private sector. It is assumed that for all theexperiments we are conducting the public sector's demand for labour andcapital is unchanging and all reallocations take place within the private sector.Thus, the government is assumed not to behave in the same way as profit­maximizing private industries. Nonetheless, the government's final demands

4. Forexample. in the first industry. agriculture. the gross surplus rromthe input-output tables is

$56.7 millions. Total capital taxes paid are obtained rromCrJlporatiol/ Financial Statistics/966 and are $4.8 millions. Therefore. the capital tax rate is calculated as 4.8/(56.7-4.8) =

0.0923.5. Alternatively we might have atlempted to obtain rough estimates of rates of depreciation over

industries by either looking at rates of depreciation for tax purposes or by considering relativeservice lives of different capital goods. The former method yields unreliable depreciation ratesand the laller involves aggregation problems for the industry classification we are using.Nunetheless this is clearly a source of data that one would like to improve upon.

6. Notice that labour and capital employment in this model includes only that used in privatesector industries. Public sector use of these primary inputs is assumed exogenously fixed andhas no innuence on the various solutions to this model.

88

Table 11

Tax and TariffRates, by Industry

FinalDemand

Capital Commodity TariffIndustry Tax Rate Tax Rate Rate

I. Agriculture 0.0923 0.0003 0.03262. Forestry 0.1154 0.0004 0.00023. Fishing and Trapping 0.0625 0.0000 0.00294. Base Metal and Other Metal Mines 0.1523 0.0374 0.00455. Uranium Mines 0.1523 0.0001 0.0427

6. Iron Mines 0.0464 0.0060 0.00017. Gold Mines 0.2628 0.0016 0.00348. Coal Mines 0.0500 0.0015 0.02299. Petroleum and Gas Wells 0.0476 0.0151 0.0174

10. Asbestos Mines 0.2311 0.0245 0.0007

II. Gypsum Mines 0.2311 -0.0531 0.004012. Salt Mines 0.2311 0.0005 0.071313. Other Non-Metal Mines 0.2311 0.0422 0.005914. Quarries and Sandpits 0.1738 0.0001 0.007815. Services Incidental to Mining 0.0705 0.0052 0.0653

16. Food and Feed 0.2548 0.0126 0.057717. Alcoholic Beverages 0.3810 0.2334 0.323818. Tobacco 0.3399 1.6095 0.242319. Rubber 0.2792 0.0905 0.115120. Leather, Textiles, and Clothing 0.2041 0.0975 0.1097

21. Wood 0.1478 0.0629 0.052522. Furniture 0.1995 0.0986 0.156723. Pulp and Paper 0.2393 0.0879 0.102824. Printing and Publishing 0.2700 0.0029 0.055225. Iron and Steel 0.2546 0.0718 0.0595

26. Smelting and Refining 0.2423 0.0479 0.027427. Aluminum Rolling and Extruding 0.2423 0.1829 0.052528. Copper and Alloy Rolling 0.2423 -0.0044 0.079429. Metal Casting and Extruding n.e.s. 0.2423 0.1027 0.075230. Metal Fabricating 0.2859 0.0901 0.1182

31. Machinery 0.2460 0.0756 0.068632. Motor Vehicles 0.3366 0.1072 0.050533. Other Transport Equipment 0.2186 0.0937 0.055934. Electrical Appliances 0.2329 0.0924 0.145335. Other Electrical Products 0.2863 0.1144 0.1164

89

Table II (continued)

IndustryCapital

Tax Rate

FinalDemand

CommodityTax Rate

TariffRate

trltrlM\O'<t0000 [-0 trl­("I"')OO",,¢_........-l'<tNOINM

- N trlI I

36. Cement37. Lime38. Other Non-Metallic Mineral Products39. Petroleum Refining40. Other Petroleum and Coal Products

4 I. Chemicals42. Miscellaneous Manufacturing43. Construction44. Water Transport45. Rajl Transport

46. Truck Transport47. Pipeline Transport48. Other Transport and Storage49. Communications50. Utilities

51. Wholesale and Retail Trade52. Owner-Occupied Housing53. Finance, Insurance, and Real Estate54. Education, Hospitals, and Health55. Other Services

56. Dummy

0.20950.14730.14730.12900.2051

0.29590.25750.16980.15360.1666

0.10980.17220.10370.23090.2032

0.20840.00000.08220.00000.1116

0.0000

0.03210.01030.07660.62400.0405

0.09410.09420.00000.00000.0007

0.00000.00000.00000.00680.0150

0.00130.00000.00000.00000.0129

0.0000

0.02630.07320.07550.05170.0250

0.06590.10590.00000.00000.0000

0.00000.00000.00000.06150.0024

0.09400.00000.00000.00000.0000

0.0000

..

0Ll.5..c:oo-0Co:l

......:N~-.:iv)"'r-:OO~O- ...... ("'0..1.....:N~..q:v) ~~oOo\o......

Demand Parameters

for industry outputs are characterized by the same sort of demand functions asall other final demands.

In table 12 we record the labour uses and capital uses by industry and inthe aggregate. In addition, for later reference we include in this table totalpayments to labour, average annual wage rates, and other value-added byindustry.

The only exogenous parameters required for demand functions are the shares oftotal expenditure devoted to each industry's output, Ej. These shares are ob­tained from the input-output tables as follows. All types of final demand bydomestic residents are aggregated into one column vector of final demand (Qi= C j + G j + Ii)' These are gross of imports and final demand taxes. The sum

90 91

'"NTable 12 (continued)

Labour Wage Average Capital Other ValueUse Payments Wage Use Added

Industry (Man-Years) ($ Thousand) ($) ($ Thousand) ($ Thousand)

21. Wood 92003 464121 5045 115277 2062322. Furniture 43128 203257 4713 49399 1212123. Pulp and Paper 114369 765734 6695 450456 5302324. Printing and Publishing 82209 494429 6014 111967 3433725. Iron and Steel 64428 437994 6798 274247 15830

26. Smelting and Refining 33618 234456 6974 106793 1911027. Aluminum Rolling and Extruding 5076 32833 6468 0 193328. Copper and Alloy Rolling 4185 28206 6740 15792 119329. Metal Casting and Extruding n.e.s. 4076 22919 5623 13845 83130. Metal Fabricating 143342 869672 6067 276630 28204

31. Machinery 75417 487050 6458 200599 1357532. Motor Vehicles 83006 598194 7207 192106 2439433. Other Transport Equipment 63376 413522 6525 66806 791034. Electrical Appliances 20289 114526 5645 21642 430635. Other Electrical Products 103228 595963 5773 192756 1332136. Cement 3992 29699 7440 56686 319537. Lime 876 5147 5876 653 15438. Other Non-Metallic Mineral Products 47507 278365 5859 144722 1537239. Petroleum Refining 10671 95427 8943 67218 1072040. Other Petroleum and Coal Products 572 3500 6119 3805 451

,'"f,,;J

Table 12 (concluded)

Labour Wage Average Capital Other ValueUse Payments Wage Use Added

Industry (Man-Years) ($ Thousand) ($) ($ Thousand) ($ Thousand)

41. Chemicals 72963 483955 6633 318561 3265642. Miscellaneous Manufacturing 67800 340393 5021 117327 1592243. Construction 510997 3587146 7020 533599 66761844. Water Transport 37290 234592 6291 77874 -620445. Rail Transport i 18548 770723 6501 291083 - 129615

46. Truck Transport 90361 408866 4525 179058 12744947. Pipeline Transport 2868 21536 7509 189125 1175148. Other Transport and Storage 91303 524766 5748 253124 8779449. Communications 142097 774354 5449 479174 -6089750. Utilities 48333 328534 6797 715140 44780

51. Wholesale and Retail Trade 995888 4282400 4300 1256212 94482152. Owner-Occupied Housing 0 0 0 1358834 156660153. Finance, Insurance, and Real Estate 262278 1651923 6298 1704300 121427654. Education, Hospitals, and Health 49023 211043 4305 34686 55550755. Other Services 486394 1873318 3851 594488 1016299

56. Dummy 0 0 0 0 478149

TOTAL 4750382 25479084 5364 13411097 9325191

\0.j:>.

Table 13

Final Demands, Final Demand Shares, Exports and Imports, by Industry

Final FinalDemand Demand Exports Imports

Industry ($ Thousand) Shares ($ Thousand) ($ Thousand)

I. Agriculture 911642 0.0168 1247993 3448432. Forestry 61463 0.0011 48425 249753. Fishing and Trapping 6359 0.0001 55665 330534. Base Metal and Other Metal Mines 13027 0.0002 220201 563625. Uranium Mines 14565 0.0003 28191 446. Iron Mines 19799 0.0004 294529 574897. Gold Mines 4389 0.0001 93023 7628. Coal Mines 41303 0.0008 14494 1723299. Petroleum and Gas Wells 73376 0.0014 450517 437049

10. Asbestos Mines 2893 0.0001 163101 266411. Gypsum Mines -584 -0.0000 8817 85012. Salt Mines 11084 0.0002 2597 361013. Other Non-Metal Mines 12717 0.0002 49182 6005914. Quarries and Sandpits 13933 0.0003 6172 2550215. Services Incidental to Mining 114001 0.0021 800 501216. Food and Feed 4233253 0.0789 530978 48506117. Alcoholic Beverages 528286 0.0217 137118 9559818. Tobacco 307824 0.0148 36233 1383119. Rubber 168282 0.0034 24620 12698020. Leather, Textiles, and Clothing 2135995 0.0431 124467 774939

of this column is total final demand or total domestic expenditure as defined byequation 17, appendix I. The values of Ej are simply the proportions of finaldemand for each industry to the aggregate (Q;/IQj).

j

Final demand by industry and the values of Ej are recorded in Table 13.Tilis table also includes the control values of exports and net-of-tariff importswhich, as indicated below, are used to obtain the values of EP and Mr

"'Production Functions - Fixed Coefficient Version

For production functions relating primary factors of production to total outputwe have limited ourselves to two types - Cobb-Douglas and Constant Elastic­ity of Substitution (CES). These functions are written:

Cobb-Douglas: (35)

C£S: (36)

(37)

(38)Pi = (I -cri)/cri

In the Cobb-Douglas case, the exponents ai and f3i are simply the share oflabour and capital in value-added respecti vely. 7 These come directly from theinput-output tables. Note that f3i is the share of capital inclusive of capital taxpayments. The values of the scale parameters Ai are obtained by using ob­served industry values of labour and capital use, total output values, and theabove-calculated labour and capital shares. The formula for calculating Ai is:

7. Because of the compl ication of 'other value-added' in the input-output tables. these shares areshares of labour and capital in the total payments to labour and capital. Other value-added isassumed to bear a constant ratio to the output price.

8. The Constant Elasticity of Substitution production function is well-known in the economicsliterature. For a complete discussion of its properties, see the seminal piece by K.J. Arrow.

H.B. Chenery, B.S. Minhas, and R.M. Solow. 'Capital-Labour Substitution and EconomicEfficiency'. Review ojEconomics and Statistics. vol. 43, 1961. pp. 225-51.

While we have observed values for L i and K i (see table 12) and cxact valucsfor ai and f3i, we cannot observe Xi in the data available. Rather, we haveoutput measured in value terms, or PiXi. However, since prices turn out to benormalized to unity in the control general equilibrium, PiXj = Xi and thecoefficients Ai may be readily calculated.

In the CES case,8 in addition to the scale parameters Aj, we need values forthe 'distribution' parameter 6 i and the 'substitution' parameter Pi. The latter isrelated to the elasticity of substitution between L i and K i as follows:

96 97

where <Tj, the elasticity of substitution is defined by:

din (w/r) (39)(TI = - din (K/L)

Tsurumi has estimated elasticities of substitution for some Canadian manufac­turing industries. 9 Where no estimates are available, we have used an elasticityof substitution of unity which corresponds to the Cobb-Douglas case. If timeand resources had permitted, we could have experimented with different valuesof <Ti. From the little sensitivity experimentation we performed, it appears as ifthe results are very insensitive to values of <Ti chosen within reasonable ranges.This is one area in which further empirical work would be of obvious benefit toresearchers. For any value of <Ti and hence Pi chosen, the distribution parame­ter which is consistent with the observed factor shares (aj, f3i) may be calcu­lated using:

0i = [ai(L;/Ki)Pij/[ 1- al + ai(Li/K i)Pi] (40)

Finally, the scale parameter Ai is calculated using the actual amounts of labour.capital, and outputs per industry according to:

Ai = Xi [Oi LiPi + (l-oi)KtijIIPi (41)

Once again, the value of output, pjXj, may be used as the physical output Xisince all Pi = I in the control general equilibrium.

The values of parameters for the Cobb-Douglas case are shown in Table14. Only Ai and ai are shown since f3i is simply I-ai'

To show why all prices turn out to be unity with the above choice of data,note first that the computed control general equilibrium will exactly replicateresource allocation of the actual economy. The use of input-output data ensuresthe correct proportions amongst all total outputs, final demands, intermediatedemands, and value added in each industry. The choice of ai or a-i and Pi

ensures the correct shares going to labour and capital. The use of actual labourand capital by industry in calculating production function scale parameters andthe use of real world wage rate differentials (gJg j ) as outlined below ensuresthe correct proportionate allocation of factors to each industry. And the correctscale of outputs (and inputs) is ensured by the use of actual industry totaloutputs in computing production function scale parameters.

Given that actual resource allocations in the control solution correspondexactly to the real world, we may demonstrate analytically that all industryprices will of necessity be unity in the control general equilibrium. The produc­tion function parameters calculated as above are really in value terms (PiAj)

9. See H. Tsurumi, 'NonlinearTwo-Stage Least Squares Estimation ofCES Production FunctionsAppl iedto the Canadian Manufacturing Industries, 1926-39, 1946-67'. Rel'ielV ojEconomicsand Srarisrics, vol. 52, no. 2. 1970, pp. 200-207.

98

Table 14

Cobb-Douglas Industry Production Function Parameters

Industry Scale Labour CapitalNumber Parameter Parameter Parameter

I 12.2667 0.274867 0.7251332 14.7273 0.811235 0.1887653 19.6917 0.699544 0.300456

~ 4 5.0223 0.322484 0.6775165 7.1180 0.415060 0.584940

6 13.2628 0.507387 0.4926137 10.8251 0.848220 0.1517808 8.5925 0.846170 0.1538309 3.6197 0.150411 0.849589

10 7.3179 0.395561 0.604439

11 7.1612 0.466275 0.53372512 8.3124 0.485355 0.51464513 5.3818 0.289958 0.71004214 9.7086 0.518680 0.48132015 15.0839 0.758292 0.241708

16 24.4723 0.653337 0.34666317 9.5767 0.359689 0.64031118 18.6626 0.468878 0.53112219 14.6404 0.632284 0.36771620 14.3258 0.785657 0.214343

21 16.7550 0.778157 0.22184322 13.8056 0.774280 0.22572023 15.8114 0.578356 0.42164424 13.9778 0.776638 0.22336225 13.8450 0.560049 0.439951

26 40.0686 0.638627 0.36137327 35.1389 1.000000 0.00000028 39.7098 0.589788 0.41021229 21.0061 0.571275 0.42872530 16.4702 0.709710 0.290290

31 16.2210 0.660858 0.33914232 30.3803 0.699672 0.30032833 17.6273 0.835513 0.16448734 21.4663 0.811045 0.18895535 15.7746 0.706197 0.293803

99

Table 14 (continued)Converting (43) to vector notation gives:

Industry Scale Labour Capital1= [1-A'-V]-I(W' ~/p + r(1 Hk)k/p) (44)

Number Parameter Parameter Parameter where I is now the unit vector. Comparing (44) with (42) indicates that all

36 6.2531 0.302246 0.697754prices equal un ity. Our normal ization procedure is therefore equivalent to

37 16.9514 0.872965 0.127035 choosing physical units of all industry outputs so their prices are unity in the

38 13.6352 0.626378 0.373622 control equilibrium.

39 62.9187 0.557023 0.44297740 11.7182 0.432847 0.567153 ...41 15.9579 0.539660 0.460340 Production Function Parameters - Variable Coefficient Case42 13.3303 0.697624 0.30237643 21.7795 0.851781 0.148219 The parameters of production functions (21) are relatively straightforward to

44 12.0670 0.723096 0.276904 obtain. In the Cobb-Douglas form, the exponents )'jj, ai. and f3i are simply the45 9.2675 0.694157 0.305843 shares of Xjj, L i, and Ki in total output (net of other value-added). They are

46 11.6297 0.672936 0.327064 therefore the value input-output coefficients for intermediate goods, labour,

47 2.2813 0.088542 0.911458 and capital calculated as a proportion of value of total output net of other48 10.3442 0.652581 0.347419 value-added. The scale parameters Ai are calculated according to:49 7.1123 0.567638 0.43236250 4.3545 0.276313 0.723687 Ai = XlII xjyt Lr i K?i)-' (45)

J

51 9.6455 0.738293 0.261707using actual values for all inputs and outputs. Once again we must use the

52 2.4986 0.000000 1.00000053 9.1285 0.472475 0.527525 values of output, PiXj, and the values of intermediate inputs, PjX ji , in (45).

54 23.3546 0.858844 0.141156 However, it can be demonstrated in the same way as above that all industry

55 10.5104 0.739229 0.260771 prices turn out to be unity in the control general equilibrium. Therefore

56 0.0000 0.000000 0.000000 PiXi = Xi and pjXji = Xji in the control solution.

Import Supply and Export Demand Functions

The world trade functions (3) and (4) involve two sorts of parameters - a scale

parameter (M? and En and elasticity (l-ti and 7)i). We have no reliable estimatesof the elasticity of demand for exports by industry or the elasticity of supply ofimports. Therefore, we may experiment with different values as time andcomputing resources permit. Given any values for I-ti and 7)i the scale paramet­ers MP and EP are calculated from the observed M i and Ei in the controlsituation. Since all prices are unity in the control situation and since it may alsobe shown that the exchange rate s is unity the values for MP and EP from (3) and(4) are simply:

since they were found by using PiXi instead of X i in (37) and (41). Since thesevalue scale parameters are used in computing unit labour and capital require­ments from (15) and (16), the latter are actually calculated as ~ Jpi and kJPi.Also, since value input-output coefficients aij are actually used in place ofphysical input-output coefficients Aij, the pricing equation (6) actually com­puted is:

P=[I-A'-V]-'(w' ~ +r(l+tk)'k) (42)

where A, the matrix of aij, is gross of commodity tax payments. When thecomputed general equilibrium replicates the real world, Wi ~ JPi andr( I +tik)k;/Pi are the wage and surplUS coefficients in the input-output tables.Since all coefficients in an industry must sum to unity:

I = ~aji + Wi QdPi + r( I+tr)/Pi + Vi (43)J

100

EP = Ej

where M i and E i are the actual values of imports and exports in Table 13.

101

(46)

(47)

Inter-Industry Wage Rate Differences

In order to have the control solution reproduce the real world, account must betaken of the fact that average wage rates differ amongst industries. Thesedifferences are assumed to be due to non-pecuniary differences in workingconditions in different industries. Labour itself remains homogeneous andmobile amongst industries at the given wage rate differentials. The averageannual wage rate in an industry in the control situation is computed to conformwith the observed average labour usage in that industry and the total wage bill,Wj. Thus,

Wi = WJL; i = I.....56 (48)

where the star refers to'the shock equilibrium. Using the old g;, we will find ingeneral

(Ig;L;*)/L = F # I

To correct the gi values we iterate them as follows. First, a new generalequilibrium is computed using the old gj. Next, F is calculated as above. Thenall gi are amended by dividing each one by the calculated F. (This will retainthe constancy of g;/gj') Another general equilibrium is calculated along with anew F. The procedure is repeated until F comes sufficiently close to unity. Atthat point, the gt will satisfy the above properties and this will be the shocksolution.

or

(Igi"L;*)/L = I

where W is the aggregate wage bill for the economy. We assume that theproportionate difference in average wage rates amongst industries is a constant;that is, w;/Wj = constant. We can treat Wj as being linearly related to w suchthat:

Input-Output Coefficients

The input-output flows made available by Statistics Canada are easily con­verted to coefficients by dividing each element by the appropriate column total.These coefficients are in value terms - they give the number of dollars of inputper dollar of output. In the variable coefficient case the value input-outputcoefficients gross of commodity tax payments are exponents ajj in the produc­tion function equation 21 , append ix I. The physical input-output coefficientsare variables and are computed according to equation 27 using the price of thegeneral equilibrium solution. In the computational procedure, since new Pi'S

are calculated for each new w within the iterative procedure, new Au's arecalculated for each w iteration.

In the fixed coefficient version, physical coefficients Au are fixed andrelated to the net-of-tax value coefficients by Au = aupJpj where au is thevalue of input i used per dollar of output j when com mod ity tax payments havebeen eliminated from the input values. To use these value coefficients as if theywere physical ones is val id only if the ratio of all com mod ity prices is un ity(pJpj = I, all i, j). Fortunately, it turns out that when parameters of the modelare chosen so as to exactly repl icate the actual economy, all industry prices turnout to be unity. This will13e demonstrated in the next section. With all pricesunity, the value input-output coefficients computed net of commodity tax pay­ments may be used as the physical input-output coefficients Au in all computa­tions for the fixed coefficient case.

Table 15 shows the input-output coefficients calculated net of tax (Au orau). These may easily be converted to gross-of-tax value coefficients au usingthe intermediate tax rates t u. Thus, au = au (I +tu) for all i, j.

In table 15 the rows represent the input requirements per unit of output foreach industry.

(49)

(50)

(51)i = I, ... ,56

j = I, ... ,56W;=gjW

w = W/L

gl = (W JL;)/(W/L)

where the wage bills and labour usages are those of the real world (table 12).Since the control equilibrium replicates the real world, these g; are the appro­priate ones to use. From (51) it follows that IWiLi = IgjwL j = wL as required.

When the equilibrium is shocked, the wage bills and labour usages willchange so that the gi as defined by the control values of W;, W, and L j will notin general ensure that IWiLj = wL in the shock equilibrium. We have intro­duced an iterative procedure for amending the gj so as to satisfy this conditionand, in addition, maintain the constancy of wi/Wj (or gj/gj) before and after theshock. That is, we want to ensure that in the shock solution,

These industry wage rates will differ from the economy-wide average wagerate,

where all gi are chosen such that wJWj are as observed and IWiLj = wL for allgeneral equilibrium allocations.

The values of gi used in computing the control general equilibrium areobtained from:

102 103

0 Table 15.I>-

Inpllt-Output Coefficients - /966

INDUSTRY I 2 3 4 5 6 7 8 9 10

1 0.039389 0.002177 0.000000 0.000028 0.000001 0.000031 0.000010 0.000200 0.000359 0.000004? 0.600401 0.094595 0.000040 0.000159 0.000011 0.000043 0.000006 0.000184 0.000417 0.0000471 0.000000 0.000187 0.028816 0.000104 0.000000 0.000021 0.000000 0.000010 0.000176 0.0000214 0.000004 0.000047 0.000000 0.013080 0.000001 0.000164 0.000773 0.000266 0.000341 0.000015"i 0.000000 0.000018 0.000000 0.000527 0.000000 0.000127 0.000382 0.007525 0.004199 0.000000

A 0.000021 0.000054 0.000000 0.000262 0.000003 0.009294 0.000172 0.000064 0.003230 0.0000137 0.000142 0.000301 0.000000 0.005166 0.000000 0.000486 0.004596 0.000745 0.000670 0.0000088 0.000000 0.000038 0.000000 0.000245 0.000000 0.000151 0.000057 0.010474 0.000491 0.0000199 0.00002S 0.000012 0.000001 0.001181 0.000001 0.000279 0.001021 0.000004 0.001208 0.000008

10 0.000000 0.000017 0.000012 0.000807 0.000000 0.000081 0.000667 0.000319 0.000122 0.000093

11 0.000000 0.000000 0.000000 0.000515 0.000000 0.000000 0.000412 0.000000 0.000103 0.00000012 0.000000 0.000000 0.000000 0.000000 0.000000 0.000042 0.000000 0.007585 0.001417 0.00000013 0.000000 0.000039 0.000000 0.000603 0.000000 0.000126 0.000447 0.001118 0.006172 0.00001914 0.000000 0.000048 0.000000 0.000369 0.000000 0.000337 0.000193 0.006967 0.000345 0.000040IS 0.000017 0.000189 0.000003 0.000157 0.000000 0.000084 0.000042 0.000014 0.000217 0.000021

lA 0.32668A 0.000084 0.020187 0.000010 0.000000 0.000017 0.000002 0.000277 0.000464 0.00000217 0.032134 0.000040 0.000000 0.000005 0.000000 0.000019 0.000000 0.001158 0.000330 0.00000018 0.27484A 0.000023 0.000000 0.000002 0.000000 0.000035 0.000000 0.000086 0.000207 0.00000019 0.000021 0.000058 0.000000 0.000012 0.000000 0.000030 0.000004 0.000647 0.000900 0.0000001'0 0.006119 0.000064 0.0045S7 0.00n021 0.000000 0.000033 0.000003 0.000381 0.000255 0.000018

21 0.002916 0.260933 O~OOOOOO 0~000009 0.000001 0.000018 0~000002 0.000107 0.000354 0.000001'2? 0.000111 0.003069 0.000000 0.000010 0.000000 0.000018 0.000008 0.000319 0.000296 0.00000021 0.00122S 0.131909 0.000000 0.000038 0.000001 0.000055 0.000004 0.005720 0.003847 0.00014324 0.000023 0.000038 0.000001 0.000015 0.000000 0.000059 0.000004 0.000103 0.000312 0.0000022"i 0.00006A 0.000207 0.000001 0.003871 0.000001 0.071222 0.000190 0.034442 0.001462 0.000005

26 0.000004 0.000040 O~OOOOOO 0.372762 0.005946 0.000907 0.003026 0.006090 0.001060 0.00000227 O.OOOOOA 0.000073 0.000000 0.000006 0.000000 o.oooolb 0.000118 0.000000 0.000942 0.00000028 0.000007 0.000080 0.000000 0.000010 0.000000 0.00001 0.0002 3 0.000848 0.000401 0.00000029 0.000000 0.000277 0.000000 0.003948 0.000000 0.000028 0.001044 0.000111 0.001044 0.00000030 O.OOOOIS 0.000080 0.000001 0.000026 0.000000 0.000029 0.000019 00.000214 0.000650 0.000004

31 0.000013 0.000089 0.000000 0.000157 0.000002 0.000105 0.000018 0.000357 0.000610 0.00002632 0.000004 0.000066 0.000001 0.000006 0.000000 0.000019 0.000804 0.006~47 0.000~55 0.00000133 0.000008 0.00009 0.000001 0.000018 0.000000 0.000028 0.000 12 0.00 38 0.000 4 0.00000434 0.000011 0.000068 0.000000 0.000088 0.000000 0.000045 0.000009 0.000295 0.000565 0.0000b435 0.000018 0.000068 0.000000 0.000031 0.000000 0.000050 0.000180 0.000300 0.000342 0.0000 2

"0 Table 15 (continued)Ul

INDUSTRY 1 2 3 4 5 6 7 8 9 10

36 O.OOOOOA 0.000031 0.000000 0.000050 0.000000 0.000082 0.000006 0.050383 0.006240 0.00000637 0.001608 0.003286 0.000000 0.000070 0.000000 0.000000 0.000000 0.072632 0.007270 0.00000038 0.000077 0.000270 0.000010 0.002400 0.000002 0.000627 0.000030 0.001923 0.002284 0.00737639 0.000003 0.000020 0.000001 0.000008 0.000001 0.000087.0.000002 0.000003 0.628181 0.00000240 0.000000 0.000051 0.000000 0.003616 0.000000 0.000306 00.000000 0.078737 0.000e66 0.00244541 0.000441' 0.000081 0.000002 0~000251 0.000001 0.000070 0.000012 0.005761 0.006318 0.000008°4? 0.00012A 0.000104 0.000000 0.000009 0.000000 0.000046 0.008473 0.000397 0.000494 0.00009143 0.00044S 0.001316 0.000014 0.000294 0.000004 0.000083 0.000218 0.000556 0.000170 0.00001844 0.000004 0.000018 0.000000 0.000002 0.000000 0.000022 0.000000 0.005b~9 0.00041~ 0.00000045 0.000138 0.000038 0.000041 0.000136 0.000011 0.000030 0.000006 0.000 0 0.0001 0.0000444A 0.000358 0.00058A 0.000003 0.000024 O.OOOOO? 0.0000?1 0.000005 0.000002 0.000756 0.00000547 0.000007 0.000003 0.000000 0.000010 0.000000 0.000077 0.000003 0.000000 0.000212 0.00000048 0.000033 0.000215 0.000001 0.000037 0.000000 0.000032 0.000010 0.000000 0.000639 0.00000449 0.000020 0.000214 0.000004 0.000022 0.000001 0.000056 0.000004 0.000001 0.000207 0.00000550 0.000001 0.000014 0.000000 0.000004 0.000000 0.000023 0.000002 0.019391 0.001452 0.00000151 0.030196 0.000785 0.000004 0.000060 0.000002 0.000129 0.000036 0.000052 0.001144 0.00001152 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.00000051 0.000050 0.000014 0.000000 0.000025 0.000000 0.000105 0.000009 0.000000 0.000882 0.00000354 0.000094 0.000031 0.000000 0.000035 0.000000 0.000029 0.000343 0.000706 0.000442 0.0000055<; 0.010950 0.000043 0.001472 0.000054 0.000001 0.000068 0.000012 0.000002 0.000425 o.oooo~~56 0.004734 0.001528 0.000177 0.000286 O.OOOOO? 0.000064 0.000032 0.000027 0.000106 0.0000

o Table 15 (continued)0\

INDUSTRY II 12 13 14 15 16 17 18 19 20

1?34C;

f>7A9

10II

Is14JC;1617lA192071'2?23242c;2f>272A29303132333435

0.000000 0.000156 0.005443 0.000684 0.000007 0.085614 0.000061 0.000011 0.002059 0.003705O.OOOOO? 0.000030 0.000034 0.000200 0.000208 0.004503 0.000015 0.000004 0.000053 0.0022260.000000 0.009536 0.000062 0.000073 0.000135 0.001276 0.000021 0.000010 0.000332 0.031450O.OOOOOh 0.000005 0.002655 0.002455 0.023005 0.000381 0.000015 0.000006 0.000073 0.0003950.000000 0.000400 0.0003f>4 0.000836 0.013323 0.000291 0.000000 0.000000 0.000236 0.000109O.OOOOO~ 0.000003 0;000144 0;00002A 0.005718 0.000444 0.000021 0.000008 0.000074 0.0001540.000000 0.000042 0.000494 0.000954 0.154524 0.000477 0.000017 0.000008 0.000075 0.0027540.000000 0.000019 0.000208 0.000019 0.002151 0.000453 0.000000 0.000000 0.000094 0.0002260.000005 0.000141 0.000156 0.000138 0.034676 0.000147 0.000017 0.000002 0.000021 0.0001140.000000 0.000012 0.000017 0.000151 0.022752 0.000557 0.000006 0.000000 0.000058 0.0144050.006904 0.000000 0.000000 0.000000 0.014632 0.000000 0.000000 0.000000 0.000000 0.000206

8:88888R 8:888566 8:88~8~~ 8:R88!8~ R:8~gg~g 8:888~6g 8:8888~S 8:8888?8 8:888~~§ 8:881~~fO.OOOOOA 0.000008 0.000161 0.014824 0.006686 0.000819 0.000024 0.000008 0.000120 0.0004410.000007 0.000007 0.002401 0.000087 0.001380 0.000507 0.000024 0.000007 0.000087 0.0001680.000000 0.000445 0.000021 0.000132 O.OOOOOA 0.160223 0.000651 0.000068 0.000178 0.002716O.OOOOOA 0.000025 0.000005 0.000003 0.000003 0.061065 0.01h539 0.000061 0.000108 0.0004790.000000 0.000000 0.000012 0.000000 0.000000 0.002810 0.000028 0.229145 0.000341 0.0012720.000000 0.000000 0.001002 0.000016 0.000002 0.001297 0.000058 0.000007 0.025549 0.1163600.000000 0.000039 0.000070 0.000043 0.000017 0.007903 0.000064 0.000010 0.010132 0.3686960.000000 0.000001 0.000004 0.000005 0.000004 0.001343 0.000043 0.000016 0.000892 0.0014240.000000 0.000000 0.000002 0.000000 0.000000 0.002121 0.000726 0.000018 0.022717 0.0860060.000000 0.000153 0.002298 0.001015 0.000002 0.003459 0.000262 0.000007 0.001422 0.0094730.000000 0.000001 0.000017 0.000006 0.000006 0.000407 0.000018 0.000005 0.001027 0.0051750.000001 0.000002 0.001219 0.003616 0.000023 0.001124 0.000036 0.000015 0.001234 0.000311

0.000000 0.000246 0.003748 0.001045 0.000009 0.000410 0.000014 0.000005 0.000059 0.0004140.000000 0.000000 0.000000 0.000034 0.000000 0.001295 0.000241 0.000017 0.000460 0.0004540.000000 0.000000 0.000112 0.000045 0.000007 0.001085 0.000042 0.000014 0.008227 0.0002230.000000 0.000000 0.000014 0.000332 0.000007 0.004439 0.000166 0.000069 0.00 747 0.0008990.000000 0.000001 0.000267 0.000205 0.000024 0.000839 0.000024 0.000009 0.001~~0 0.0011060.000013 0.000019 0.000238 0.000247 0.000184 0.001085 0.000050 0.000019 0.010772 0.0011860.000000 0.000001 0.000088 0.000054 0.000005 0.000630 0.000026 0.000009 0.018557 0.0209450.000000 0.000001 0.000041 0.000079 0.000019 0.000598 0.000020 0.000009 0.013896 0.004483O.OOOOOC; 0.000000 0.000864 0.000093 0.000100 0.001136 0.000034 0.000014 0.010377 0.0023770.000000 0.000000 0.000262 0.000043 0.000010 0.000793 0.000067 0.000007 0.0 3126 0.004498

0 Table 15 (continued)-..I

INDUSTRY II 12 13 14 15 16 17 18 19 203h

0.00 6 970 0.000008 0.000006 0~00~002 0.0000}5 0.000~8~ 0.000006 8.080000 0.000036 0.000604370.00 000 0.00000 0.000000 0.00 453 0.0000 0.000 6 0.000000 .0 0000 0.00000 0.0054533A0.001127 0.000009 0.009316 0.036618 0.000053 0.0014~9 0.000029 0.000006 0.00

6959 0.00453539

0.000000 0.000069 0.000146 0.000009 0.000007 0.0002 4 0.000011 0.000001 0.00 024 0.000060400.000000 0.000000 0.000255 0.042068 0.000000 0.000713 0.000000 0.000000 0.000866 0.000153

41O.OOOOOn 0.002286 0.015697 0.00?~37 0.000011 0.02~}49 0.001683 0.000009 0.00~176 0.0038424?0.000000 0.000006 0.000133 0.000 46 0.000002 0.00 28 0.000062 0.000007 0.00 933 0.021070410.000000 0.000012 0.000100 0.00S577 0.007409 0.001427 0.000121 0.000018 0.004302 0.005779440.000000 0.000000 0.000007 0.000000 0.000000 0.000466 0.000011 0.000004 0.000366 0.002A204c;0.000000 0.000384 0.000005 0.000207 0.000184 0.0014P4 0.00n015 0.000004 0.001005 0.002287

4f> 0.000000 0.000004 0.000003 0.000020 O.OOOOIA 0.001130 0.000099 0.000014 0.017164 0.000hA747 0.000000 0.000000 0.000024 o.oonooo 0.000000 0.000024 0.000000 0.000000 0.000000 0.00000748 0.000000 0.000191 0.000004 0.000672 0.000010 0.000536 0.000044 0.000006 0.003971 0.001048490.000000 0.000002 0.000016 0.000019 0.000018 0.000128 0.000008 0.000000 0.000018 0.00050350 0.000000 0.000000 0.000005 0.000000 0.000000 0.000146 0.000005 0.000001 0.000019 0.000020

51 0.000000 0.000004 0.000016 0.000045 0.00002A 0.0017A4 0.000059 0~000027 0.000787 0~0054755?0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000530.000000 0.000000 0.000030 0.000001 O.OOOOOS 0.000078 0.000017 0.000000 0.000g~6 0.00007554 0.000000 0.000000 0.000000 0.000001 0.000006 0.000697 0.00n061 0.000003 0.000 4 0.006105c;c;0.000000 0.000043 0.000021 0.000054 0.000036 0.079645 0.000057 0.000022 0.000489 0.0076545h O.OOOOIS 0.000044 0.000395 0.000002 0.000204 0.028360 0.003858 0.000029 0.021254 0.006620

0 Table 15 (continued)00

INDUSTRY 21 22 23 24 25 26 27 28 29 30

1 0.000877 0.000065 0.000954 0.000158 0.000157 0.001199 0.000000 0.000001 0.000018 0.002348? 0.00042R 0.000024 0.000205 0.000046 0.000395 0.000108 0.000001 0.000000 0.000026 0.0071353 0.01193? 0.000176 0.000923 0.000078 0.000742 0.000213 0.000000 0.000000 0.000057 0.0091734 0.000884 0.08 00 00 8.0805~7 0.00808~ 0.000639 0.00 0251 0.000004 0.000804 0.0083+~ 0.005868, 0.000 73 0.0 00 .0 17 7 0.00 1 0.0 5253 0.00 818 0.000000 0.000 00 0.00 0 0.0029636 0.000087 0.000018 0.000413 0.000146 0.004388 0.000968 0.000003 0.000003 0.000056 0.0025967 0.000100 0.000025 0.001549 0.000109 0.016418 0.003818 0.000000 0.000008 0.000594 0.0043958 0.000698 0.000000 0.000887 0.000170 0.010360 0.001340 0.000000 0.000000 0.000170 0.0059079 0.000044 0.000007 0.000255 0.000102 0.000168 0.000423 0.000002 0.000000 0.000022 0.001518

10 0.000161 0.000012 0.019536 0.000453 0.000099 0.000273 0.000000 0.000000 0.000Q17 0.00096911 0.00391h 0.000000 0.000515 0.000103 0.009789 0.000309 0.000000 0.000000 0.000000 0.002267I? 0.88 0458 0·888g 4i 0.07569~ 8. 08tg67 0.08 0000 0.000792 0.0008 0 8 8.8 00 888 8.08050~ 0.08~20913 O. 8650 O. 0 0.031 0 .0 16 0.0 3888 0.001361 0.000 0 • 00 .0 0 6 0.0 898

t~ 8:888g~~ 8:8888t~ 8:885~'~ 8:8881~~ 8:8£g~~~ 8:8883~g 8:88888g 8:888888 8:888b+~ 8:88~68616 0.001475 0.000126 0.031009 0.001122 0.000361 0.000092 0.000058 0.000003 0.000036 0.01677417 0.00680A 0.000282 0.041700 0.011057 0.000022 0.000175 0.000000 0.000000 0.000083 0.02028418 0.002928 0.000102 0.057545 0.007.677 0.000009 0.000016 0.000000 0.0000h9 0.000009 0.00326519 0.000619 0.000 88 0.012791 0.000442 0.001560 0.002493 0.000137 0.0000 9 0.000468 0.01066020 0.001866 0.000258 0.015593 0.000468 0.000222 0.000593 0.000011 0.000030 0.000112 0.00387021 0.41422, 0.007968 0.008367 0.000180 0.000993 0.000176 0.000564 0.000025 0.000104 0.00961227. 0.081729 0.030273 0.024269 0.000904 0.027055 0.000451 0.001104 0.000163 0.000397 0.06291323 0.031447 0.000808 0.142876 0.002913 0.000685 0.003038 0.003396 0.000172 0.000336 0.00666224 0.000259 0.000027 0. 082,56 0.069196 0.000031 0.000530 0.0002~6 0.000~02 0.003987 0.000889?5 0.002551 0.000784 O. 02 03 0.000159 0.130539 0.031357 0.0015 9 0.000 52 0.004362 0.01741326 0.000131 0.000017 0.001132 0.000068 0.009479 0.291814 0.000877 0.000174 0.007525 0.00299227 0.003134 0.000219 0.013058 0.000241 0.014706 0.526132 0.019000 0.001329 0.020694 0.01134228 0.005347 0.000~35 0.002~5~ 0.00068~ 0.00,869 0.646044 0.00890~ 0.00800~ 0.028059 0.0~15i329 0.001231 0.000 5 0.004 6 o.noo 1 0.00 087 0.26 131 0.01493 0.00335 0.041485 0.0 41 030 0.002979 0.000500 0.007983 0.000319 0.209853 0.013075 0.019000 0.008279 0.005572 0.11052831 0.002567 0.000397 0.002857 0.001166 0.088504 0.002609 0.004722 0.006526 0.002240 0.098697

j~ 0.00+,80 0.000995 0.00671~ O.OOOII~ 0.Og5198 0.0029~~ 0.004380 0.0061j7 0.00454~ 8.84~3750.00 04 0.000722 0.0024 0.000 0.0 4615 0.0040 0.011644 0.0044 1 0.00309 • 5 9334 0.003897 0.007272 0.021346 0.000547 0.071744 0.006451 0.013609 0.009631 0.003386 0.14751435 0.001611 0.008623 0.007729 0.000208 0.025117 0.017898 0.018473 0.066824 0.006166 0.031126

"o Table 15 (continued)\0

INDUSTRY 21 22 23 24 25 26 27 28 29 30

3637

3~4041424344454647484950515?

~25556

0.000403 0.000013 0.015853 0.000390 0.000025 0.000434 0.0000000.001049 0.000000 0.040475 0.000909 0.000350 0.000280 0.000000

8:38n~gt 8:888b~~ 8:8b~~I9 8:888a7~ 8:886£~~ 8:8b~1~2 8:88886~0.000611 0.000000 0.007894 0.000153 0.000255 0.000051 0.0000000.002107 0.000441 0.027151 0.000744 0.002947 0.009312 0.0004080.017087. 0.000698 0.030945 0.000829 0.016787 0.017575 0.0092550.051780 0.003234 0.008389 0.000160 0.032253 0.000150 0.0009490.000147 0.000036 0.000770 0.000245 0.000051 0.000013 0.0008000.900097 0.000066 0.000237 0.000046 0.006492 0.000041 0.000 660.000118 0.800051 0.000280 0.000145 0.000882 0.000031 0.0000000.000007 O. 00000 0.000077 0.000034 0.000003 0.000252 0.0000000.00011? 0.000058 0.001712 0.002434 0.000224 0.000068 0.0000000.00002A 0.000006 0.000418 0.007613 0.000006 0.000020 0.0000000.000014 0.000005 0.000080 0.000395 0.000013 0.000142 0.0000000.001714 0.000220 0.011525 0.001595 0.000279 0.000153 0.0000190.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.0000000.008 035 0.008 011 0.08 0116 8.802094 0.000011 0.800038 0.8000000.00 090 0.00 124 0.0 1893 • 02535 0.00002€> o. 00176 O. 000000.00265? 0.000355 0.004909 0.000709 0.000060 0.000350 0.0000060.000738 0.001142 0.0133~0 0.094470 0.002544 0.000955 0.000155

0.000000 0.000069 0.0003840.000000 0.000000 0.001678

8:888hn8 8:8888~~ 8:8b;8l~0.000000 0.000051 0.0132420.000522 0.001407 0.0145960.009281 0.003993 0.0334810.003313 0.001386 0.1019840.008000 0.088007 0.0013210.00 583 0.0 224 0.0065600.000002 0.000024 0.0014040.000000 0.000000 0.0000070.000001 0.000012 0.0005880.000000 0.000001 0.0001190.000000 0.000003 0.0000560.000024 0.000029 0.0033050.000000 0.000000 0.0000000.0008 00 0.0088 00 8. 088 0560.000 00 0.00 57 .0 3600.000000 0.000187 0.0012780.000124 0.000427 0.038959

oTable 15 (continued)

INDUSTRY 31 32 33 34 35 36 37 38 39 40

1?34SA789

) 0

1 11213

l~

1918192021

~S24252n27

~~3031

3~343S

0.00755S 0.000667 0.000299 0.000098 0.000518 0.000012 0.000035 0.000160 0.034735 0.0000050.003827 0.000239 0.002294 0.000093 0.000991 0.000082 0.000000 0.000708 0.020897 0.0000170.027463 0.002645 0.070083 0.000171 0.011460 0.000005 0.000000 0.001395 0.042859 0.0000050.012091 0.000967 0.001881 0.000182 0.000391 0.000017 0.000793 0.000511 0.004806 0.0000130.010651 0.000673 0.001291 0.000127 0.000400 0.000000 0.004926 0.000Q36 0.007~~2 0.0000000.011099 0.000827 0.009792 0.000128 0.000483 0.000015 0.000023 0.000531 0.024355 0.0000210.612039 0.001515 0.001833 0.000293 0.000511 0.000008 0.002076 0.000360 0.007141 0.0000000.021079 0.001170 0.004642 0.000189 8.000755 0.000080 0.080000 0.000113 0.020042 0.0000190.0045?1 0.000 31 0.001140 0.000033 .000222 0.0000 5 0.0 0000 0.000077 0.003499 0.0000010.00235A 0.000284 0.000488 0.000035 0.OOO?61 0.00004\ 0.000023 0.000279 0.021864 0.0000060.007419 0.000927 0.000721 0~000103 0.00020~ 0.000000 0.000000 0.00247J 0.018959 0.0000000.000917 0.000333 0.000083 0.000000 0.000208 0.000000 0.001250 0.000083 0.018045 0.0000000.013044 0.000729 0.001302 0.000165 0.000515 0.000029 0.000097 0.001186 0.009690 0.000010

8:8~~r4~ 8:88?~a~ 8:881e6~ 8:g88~~~ 8:888~l6 8:888869 8:883b~t 8:88b~g? 8:8~ZS~~ 8:88888g

0.080818 8.080536 0.080156 8.00°865 0'800414 0.080007 8'800044 8'804698 0.005861 0'8000140.0 1093 .0 0420 0.0 0628 .000 40 O. 00358 0.0 0005 • 00056 • 32743 0.003909 O. 000060.001017 0.000190 0.000123 0.000016 0.000316 0.000000 0.000028 0.000065 0.001082 0.0000000.003161 0.000723 0.001005 0.000119 0.001184 0.000005 0.000011 0.001056 0.004781 0.0000260.001460 0.000817 0.000191 0.000107 0.000764 0.000003 0.000029 0.001071 0.002701 0.0000380.001013 0.001098 0.000251 0.000126 0.000784 0.000006 0.000004 0.005294 0.005646 0.001085

8:88b~6S 8:883413 8:88gI~1 8:R886~g 8:88Sgjb 8:8888?~ 8:8882a~ 8:88~~I1 8:8?4~~r 8:8888~t0.001538 0.000293 0.000120 0.000028 0.000256 0.000011 0.000005 0.000110 0.001927 0.0000040.006105 0.002145 0.001324 0.000463 0.002832 0.000023 0.001279 0.015311 0.010658 0.0020080.001846 0.000533 0.000378 0.000125 0.001316 0.000005 0.000286 0.004622 0.005797 0.0018340.007630 0.001469 0.000779 0.000662 0.002383 0.000006 0.000006 0.000802 0.005747 0.000006

8:8?~6~~ 8:88~~~~ 8:8829a~ 8:88~t~f 8:8?28lg 8:8888?2 8:8888?2 8:88~~rS 8:88~7~2 8:888?310.610119 0.003867 0.002875 0.003135 0.00929S 0.000026 0.000016 0.005626 0.002361 0.0000870.40314? 0.010840 0~007703 0~00~697 0.045261 0.000016 0.000004 0.0018B5 0.003008 0.000084

8:gg~~t~ 8:5I~~33 8:?~b~~s 8:g8Y~I~ 8:8~~~~~ 8:888882 8:888?g~ 8:8b~1A~ 8:88~~2~ 8:888b4~0.047013 0.004983 0.009152 0.055338 0.070049 0.000009 0.000027 0.002361 0.002250 0.0000770.005381 0.002200 0.001911 0.006177 0.166692 0.000005 0.000008 0.008807 0.001634 0.000019

,Table 15 (continued)

INDUSTRY 31 32 33 34 35 36 37 38 39 40

3n37

3~40414?4344454A47484950515?53545556

0.000554 0.000239 0.000107 0.000019 0.000189 0.000346 0.000252 0.001007 0.018042 0.0000130.001118 0.000419 0.000000 0.000000 0.000210 0.026984 0.000210 0.012443 0.033135 0.000350

8:88r7~~ 8:888~g~ 8:88g~~7 8:8888Yr 8:8853~e 8:8Z~6gy 8:88btt~ 8:85E~A~ 8:8b;~~~ 8:888~~~0.000764 0.000611 0.000306 0.000051 0.000357 0.000204 0.001070 0.001884 0.122078 0.000407

00.00002893 0.000701 0.000342 0.000131 0.000849 0.000027 0.000277 0.010781 0.025484 0.0014050 '01 27959 0.001280 0.000501 0.000914 0.008612 0.000029 0.000021 0.012143 0.002724 0.000033

• 79~ 0.004373 0.002437 0.003208 0.037638 0.003941 0.000376 0.060536 0.011735 0.00140900.00006273523 00.00 203761 0.027737 0.000051 0.000607 0.000000 0.000002 0.000067 0.032261 0.000002

• S .00 84 0.011548 0.000073 0.000501 0.000001 0.000001 0.001615 0.032999 0.0000330.001364 0.030110 0.000205 0.000386 0.00361~ 0.000011 0.000002 0.000389 0.0~5074 0.0000080.00061S 0.000024 0.000067 0.000000 0.000034 0.000007 0.000000 0.000044 0.001149 0.000000

8 '88 244A 0.003979 8.014616 0.008 077 0.001457 0.000008 0.008 016 0'888 247 0'833982 8'888881• 204A 0.000051 .000051 0.00 005 0.017926 0.000004 0.00 000 O. 037 O. 01539. 10.00127? 0.000124 0.000068 0.000011 0.000095 0.000011 0.000000 0.000074 0.008493 0.0000010.001428 0.000257 0.000355 0.000056 0.000431 0.000016 0.000012 0.000376 0.007101 0.0000030.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.0000000.00221? 0.000051 0.000225 0.000006 0.000049 0.000004 0.000000 0.000012 0.001240 0.0000000.000968 0.000242 0.000245 0.000236 0.000337 0.000022 0.000000 0.00034'1 0.003949 0.0000010.000727 0.000296 0.000290 0.000073 0.000363 0.000015 0.000002 0.001135 0.003827 0.0000030.03978'1 0.031470 0.003767 0.002141 0.030300 0.000024 0.000004 0.004049 0.003220 0.000026

NTable 15 (continued)

INDUSTRY 41 42 43 44 45 46 47 48 49 50

1('34C;

"7R9

101 1

iji~

19l~20212??3

~~?,.,?72A1'930313?333435

0.031574 0.000302 0.019022 0.000226 0.000190 0.000580 0.000182 0.005235 0.002497 0.0081160.001581 0.001744 0.020328 0.011843 0.002285 0.021418 0.000003 0.000288 0.003257 0.0030260.002624 0.012005 0.044596 0.002079 0.000876 0.008058 0.000181 0.006975 0.001784 0.0015970.015500 0.000353 0.015793 0.000000 0.001964 0.002652 0.000126 0.001031 0.001170 0.0162270.06371'7 0.000345 0.006289 0.000000 0.000164 0.000018 0.000000 0.000236 0.000891 0.015868

8:8~e~~~ 8:888~~~ 8:8~~6~~ 8:80S6~6 8:88Sj~~ 8:8888l~ 8:88ggg~ 8:88iSb~ 8:88Iig~ 8:8~~6~g0.01211, 0.000566 0.006586 0.000000 0.011342 0.000000 0.000000 0.000019 0.002812 0.0727870.004439 0.000174 0.025352 0.000004 0.000254 0.000054 0.000767 0.002314 0.003289 0.0125100.G13591 0.000714 0.013581 0.000000 0.007534 0.000000 0.000000 0.000290 0.002171 0.0218230.029469 0.000103 0.003194 0.000000 0.000103 0.000000 0.000000 0.000309 0.003709 0.018753

8:8fa9g~ 8:888~~2 8:88~~~~ 8:888888 8:888~§j 8:888888 8:88A~~5 8:88853f 8:88Y9gfi 8:8~I5~~8:86~~?~ 8:888~19 8:883~~~ 8:866S68 8:88~61~ 8:8yg~8~ 8:888888 8:8Y28~2 8:88~6~~ 8:86~~I~

8:88282~ 8:88flt9 8:8853I~ 8:g88~~2 8:888%a6 8:881~61 8:888j~~ 8:8867~S 8:88~~28 8:88~69~8:~9~2~~ 8:88~1~Z 8:88~f2~ 8:R8g8b~ 8:888~a9 8:g81~~a 8:88g~~+ 8:888II~ 8:886~~~ 8:88+6~~0.03243? 0.015462 0.002559 0.000002 0.000276 0.001270 0.000209 0.000116 0.004Z50 0.0047400.011573 0.002268 0.004863 0.000001 0.000123 0.001280 0.000251 0.000098 0.003968 0.008858

8 ·018428 0.028109 0.002852 0.000002 0.800090 0.001 262 0.880366 8.88°0 145 8.885756 8.806~19.036783 0.004459 0.004432 0.001320 o. 00652 0.00 077 O. 1314 • 059 • 3549 • 27~64

8:8oa~;~ 8:88ylSj 8:88tg3~ 8:88g88~ 8:8874t~ 8:881561 8:88?7g~ 8:888b98 8:8~~f~2 8:8y,§g$0.006934 0.000282 0.005341 0.000093 0.00012R 0.0011A2 0.001074 0.000075 0.001078 0.0143420.013568 0.000992 0.003812 0.000000 0.000095 0.001211 0.001110 0.000090 0.003695 0.0106580.004994 0.001064 0.002282 0.000000 0.000143 0.001208 0.000478 0.000091 0.001717 0.0051370.030160 0.004819 0.002558 0.000000 0.000035 0.001390 0.001272 0.000249 0.004225 0.0050200.011301 0.0053?9 0.00?911 o.nonnno n.onnl7n n.001907 0.00n778 0.000078 0.006420 0.0051600;006424 0;008452 0;002839 0;000001 0;000090 0;001362 0;000424 0;000099 0;007~56 0;0035250.005984 0.011837 0.001868 0.000000 0.002438 0.002266 0.000406 0.000067 0.004

8092 0.003294

0.005793 0.008131 0.004268 0.000000 0.000145 0.002041 0.000157 0.000886 0.007 43 0.0051590.01740? 0.024554 0.001973 0.000000 0.000082 0.001325 0.000569 0.000088 0.005555 0.0050540.01901? 0.014594 0.003079 0.000002 0.000875 0.003163 0.000236 0.000119 0.009949 0.003887

,w

Table 15 (continued)

INDUSTRY 41 42 43 44 45 46 47 48 49 50

~9 8:881~ig 8:88f~~§ 8:8o+~2~ 8:888888 8:88?~~A 8:88iIg~ 8:8?3jZl 8:8888~8 8:88~5gj 8:8j;~~~38 0.02285'5 0.003528 0.006217 0.000000 0.000866 0.001317 0.002840 0.000074 0.005409 0.01764639 0.04015'" 0.002352 0.018981 0.000546 0.000155 0.001207 0.082021 0.000028 0.001086 0.0071554Q 0.038808 0.000662 0.033206 0.000000 0.000051 0.001222 0.001171 0.000051 0.010950 0.01049141 0.189578 0.010312 0.006707 0.000010 0.000286 0.002590 0.002547 0.000310 0.006206 0.0210694? 0.09260? 0.054R93 0.003131 0.000001 0.000083 0.001343 0.000493 0.000101 0.007806 0.0055604, 0.008463 0.009442 0.001646 0.000783 0.000986 0.004473 0.000000 0.000915 0.001387 0.00096944 0.00120'5 0.000691 0.017444 0.22?517 0.002148 0.000007 0.000118 0.003012 0.007868 0.001~044S 0.000815 0.002573 0.099123 0.000057 0.022187 0.002095 0.00n086 0.001366 0.016483 0.0022324,., 0.00272'5 0.001055 0.001933 0.000485 0.024676 0.053684 0.000164 0.013436 0.011399 0.00358147 0.000071 0.000003 0.011251 0.000000 0.000191 0.000017 0.011998 0.000024 0.011536 0.02329548 0.001359 0.001178 0.015179 0.001701 0.008688 0.007981 0.000296 0.026051 0.011506 0.00736749 0.000371 0.000728 0.033196 0.n01270 0.008017 0.021213 0.00n029 0.012139 0.028831 0.00209650 0.00014'" 0.000047 0.046465 0.000000 0.000513 0.000429 0.00?495 0.000021 0.003252 0.01820951 0.0010?8 0.001665 0.00S208 0.003867 0.002959 0.n05084 0.001341 0.016553 0.022477 0.0136685? 0.000000 0.000000 0.129359 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.00000051 0.000201 0.000037 0.043304 0.ono009 0.000151 0.000123 0.000827 0.000164 0.018259 0.00543854 0.01894R 0.018317 0.001607 0.no0012 0.000152 0.000268 0.00n417 0.002053 0.032104 0.00376~55 0.010350 0.005132 0.004904 0.000011 0.000832 0.000923 0.000226 0.001517 0.010482 0.00565656 0.027657 0.027649 0.000344 0.n24486 0.119730 0.100523 0.000000 0.038639 0.024045 0.000131

.j:>.Table 15 (continued)

INDUSTRY 51 52 53 54 55 56

1

~4e;

fI78q

10I 1Ii'1314Ie;

1617

l~2021n23242e;

26?7282q30313?33343<=;

0.028071 0.000000 0.033972 0.000007 0.00i'689 0.048622

8:8~~¢4~ 8:888888 8:8Y~~~~ 8:888880 8:86~g~~ 8:hf~8~~0.008767 0.000000 0.014899 0.000000 0.009986 0.0534810.011269 0.000000 0.032082 0.000000 0.007434 0.073397

0.Oi5287 0.000008 0.057601 8.080000 0.029513 0.2471850.0 4567 0.00000 0.036092 .0 0000 0.014978 0.0920930.020476 0.000000 0.053821 0.000000 0.023740 0.2081520.003058 0'800000 0.175867 0.000003 0'846013 0.0263850.013175 O. 00000 0.009066 0.000000 O. 28480 0.1371070.01566? 0.000000 0.037713 0.000000 0.011128 0.0943840.016337 0.000000 0.029006 0.000000 8.006335 0.1394460.014813 0.000000 0.032959 0.000000 .010351 0.0643920.023669 0.000000 0.025932 0.000000 0.015563 0.1700160.0172f18 0.000000 0.033245 0.000000 0.010107 0.1714980.030731 0.000000 0.008569 0.000000 0.007585 0.0810550.01710fl 0.000000 0.008728 0.000000 0.034409 0.142386

8:8~3~e~ 8:888888 8:8i~~¢j 8:88888~ 8:88~~g~ 8:8~~~~?0.032839 0.000000 0.016815 0.000002 0.006849 0.0628070.037655 0.000000 0.017752 0.000001 0.006671 0.0972000.043147 0.000000 0.015345 0.000000 0.009617 0.0520230.01864? 0.000000 0.014073 0.000001 0.006950 0.0768620.01350fl 0.000000 0.022209 0.000002 0.018932 0.0780990.03443? 0.000000 0.006003 0.000000 0.005696 0.0852700.011239 0.000000 0.005514 0.000000 0.004992 0.0316370.033998 0.000000 0.006055 0.000000 0.012233 0.0846530.034244 0.000000 0.005881 0.000000 0.007496 0.0389520.141526 0.000000 0.004501 0.000000 0.002614 0.0726750.021756 0.000000 0.009906 0.000000 0.010675 0.0641780.031690 0.000000 0.019249 0.000001 0.009674 0.0636390.02034? 0.000000 0.005814 0.000000 0.023876 0.0515900.02171? 0.000000 0.011136 0.000000 0.015674 0.0743810.030254 0.000000 0.011262 0.000000 0.011858 0.0670030.019794 0.000000 0.018518 0.000002 0.009173 0.062812

,Table 15 (concluded)

Ul

INDUSTRY 51 52 53 54 55 56

3" 0.011757 0.000000 0.014507 0.000000 0.011267 0.13023837 0.025795 0.000000 0.009018 0.000000 0.020832 0.23684038 0.025223 0.000000 0.017800 0.000000 0.013729 0.11832339 0.005513 0.000000 0.019905 0.000000 0.001758 0.04572340 0.027094 0.000000 0.007588 0.000000 0.022918 0.13022741 0.027137 0.000000 0.017517 0.000000 0.016526 0.1291044(> 0.027540 0.000000 0.018961 0.000000 0.008277 0.09483343 0.051230 0.000000 0.010691 0.000000 0.030583 0.03158444 0.010800 0.008888 0.01649~ o.oonooo 0.085684 0.05093945 0.014904 0.00 0.01798 0.000000 0.0 9667 0.061314

4" 0.050267 0.000000 0.019400 0.00n003 0.006069 0.081269

tA 8:8~~~~~ 8:888888 8:8~1Z0~ 8~88888~ 8:8~~bf~ 8:8qblo~49 0.013013 0.000000 0.020788 0.000002 0.027685 0.03221850 0.015573 0.000000 0.021990 0.000000 0.005484 0.01835851 0.011594 0.000000 0.054776 0.000012 0.016089 0.1001355;> 0.000000 0.000000 0.009002 0.000000 0.000000 0.00000053 0.00305? 0.000000 0.086200 0.000146 0.024715 0.07520354 0.01541R 0.000000 0.034622 0.000009 0.029616 0.07910755 0.021666 0.000000 0.041790 0.000008 0.037537 0.0752645f> 0.125884 0.000000 0.000000 0.000000 0.075487 0.010510

The Authors

Robin W. Boadway, a native of Saskatchewan, was born in 1943. Followinggraduation in engineering from the Royal Mil itary College of Canada, he tookthe B.A. and B.PHIL. degrees from Oxford University and a PH.D. in economicsfrom Queen's University. A member of the Canadian Armed Forces from 1964to 1972, he also served as Lecturer in Economics at RMC from 1969 to 1972 andhas taught at Queen's University since 1972. He is an Associate Professor in theDepartment of Economics.

John M. Treddenick was born in Manitoba in 1938. He holds the degrees of B.A.

from the Royal Military College of Canada and PH.D. in economics fromQueen's University. After serving in the Royal Canadian Navy, Dr. Treddenicktaught at RMC from 1967 to 1973. In 1973/74 he was Ch ief of the EconometricsDivision of the National Energy Board, returning in 1974 to RMC, where he is anAssociate Professor in the Department of Political and Economic Science.

116

The Centre for Resource Studies

The Centre was established in 1973 through the sponsorship of Queen's University, thefederal Department of Energy, Mines and Resources, and The Mining Association ofCanada. A multi-disciplinary research organization, it attempts to bring the knowledge,experience, needs, and views of individuals from governments, industry, universities,labour, and other interested groups to bear on important issues underlying mineralresource policy. Mineral resources considered by the Centre include the metallic,industrial and non-metallic, and structural minerals, but exclude petroleum and naturalgas.

The prime function of the Centre is to carry out a program of research andpublication on mineral policy issues. The program provides research and educational

'opportunities in resource studies at Canadian universities, and furnishes reliableinformation to promote a more fruitful exchange between representatives of the variousgroups concerned with resource policy. Through the continuing support of the sponsors,research by qualified investigators is funded at the Centre, in various departments atQueen's University, and at other Canadian universities. Research reports are reviewedby recognized authorities in each field before publication, in order to maintain highstandards of scholarship, but no restrictions are imposed on authors at any stage of theinvestigation. The Centre's publications attempt not only to provide reliable data, but topresent research results in a clear and readable form. Reports employ non-technicallanguage, so far as the subject allows, to enhance their value to non-specialists. In thisway, the Centre hopes to assist and broaden informed discussion of the issues.

The Centre is governed by a board of directors which decides general policy andestablishes priorities for research. The chairman is Dean R. J. Hand, and the executivedirector is Dr. C. G. Miller. There are fourteen other members - seven nominated byQueen's University, four by the Mining Association of Canada, and three by the federalgovernment. Guidance on the research program, together with discussion of policyissues and other matters, is provided by the Advisory Council. This body comprises allresearchers associated with the Centre and other, appointed, members drawn from suchgroups as governments, industry, labour, and consumers. Committees of specialists­primarily from Queen's University, but also including representatives of governmentand industry - aid in the development of projects and the selection of researchproposals, and advise on the progress of the research. Aside from the main researchprogram, which is carried out at the Centre and by means of contracts, smallexploratory studies are funded through a system of grants-in-aid of research. Theexecutive director and staff are responsible for the work of the Centre within thisframework.

The Centre welcomes comments on its publications, proposals for researchprojects, or enquiries about any aspect of its work.

Centre for Resource Studies/Queen's University/Kingston, Ontario/Tel: (613) 547-5957

117