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Basis for an essay on the evolution of the Maritimes economy. 1. Goal of the project is to study the importance of mixed agriculture in determining the likelihood of a region's becoming a manufacturing heartland. More specifically, the goal is to determine the role of poor agricultural resources as the cause of the hinterland position of the Maritimes in the Canadian economy. a. Studies such as Gilmour and MacCalla which used as staples framework to explain Ontario's success found the positive association between agricultural and economic development. However the superiority of agriculture as a source of exports was not the issue. Agriculture was beneficial for development whether or not its output was exported, so that the content of their work is valuable even if the analytical framework is rejected. b. The role of agglomeration economies has long been obvious, as in Gilmour, but recent advances in economic analysis (Krugman, Arthur) have given a better theoretical foundation for the analysis. 2. Manufacturing (or non-primary production) is more than proportionately stimulated by agricultural development. a. Much of the benefit of agriculture stemmed from its role in creating agglomeration economies. Agriculture resulted in higher population and income densities than other resource based production. This role for agriculture is based empirical observations of production in the 19th century, not on theoretical analysis. b. A secondary benefit stemmed from reduction in costs created by an abundance of agricultural products. The real cost of labour and the cost of many raw materials for manufacturing were reduced by the low cost availability of cheap agricultural produce. In the 19th century food was a very substantial portion of the average person's consumption. The raw materials for a large portion of non-food consumption were also produced by temperate climate agriculture. Clothing, footwear and transportation could be produced from wool manufactured into cloth, hides manufactured into leather for shoes and harness. Horses were an agricultural product of great importance to transportation as well as productive motive power. 3. Manufacturing clusters in favoured locations: locations are favoured by a. Geographic factors reducing costs of production or transport costs. For example, locations on a good harbour, or locations near a low value high bulk raw material were geographically favoured. b. Scale advantages resulting from agricultural and other development in the hinterland. These scale advantages may stem primarily from the availability of a local market, but reduced real cost of labour and of raw materials due to productive agriculture also played a role. Political decisions may create scale advantages of particular locations, as when a city is chosen as a capital or as a military base. c. Superior transportation facilities due to improvements i. resulting from policy decisions or other 'economic accidents' ii. resulting from the larger scale of the economy which makes improved transportation profitable. That is, more transportation improvements can be profitably financed the higher the level of economic activity. The scale may be in effect or anticipated, in which case growth becomes a self-fulfilling prophecy. 4. The geographic areas to be studied need to be ordered into hierarchical categories. Use 1870 census divisions as units… a. Districts are the smallest unit of analysis. Each district may or may not develop significant amounts of manufacturing. A county would be a suitable political unit to define as a district. Census sub-districts or groups of such divisions could form a district. b. Areas are defined as a manufacturing centre, that is a town or city, and its hinterland. The hinterland consists of those districts with lower transportation costs to that centre than to other centres. An area may include one or more counties or parts of counties. The basic census districts of 1870 are the units here. -- half counties etc. c. Sub-regions contain one or more areas. A sub-region might be a province or only a portion of a province. This is a grouping of census districts. d. Some regions contain one or more sub-regions. Some regions contain provinces, others contain only one province. All will contain a number of areas. 5. Because manufacturing tends to cluster in favoured locations, cities will emerge within well favoured districts, becoming the centres for areas. Some areas within a province or region will be more attractive than other areas, resulting in larger cities with more manufacturing. i. Cities with their areas can be ranked in a hierarchy by population size and by extent and type of manufacturing. ii. Geographic factors, scale advantages or superior transportation facilities as outlined about make one area more attractive than another. iii. Because scale economies play a large role in making a city attractive, those cities which grow earliest will likely remain the most attractive. Once a city has gained a significant scale, it may well be more attractive to manufacturing than cities with lower costs resulting from geographic conditions. Scale economies from rich agriculture will become unimportant, once urban growth has become sufficiently large. iv. Some industries will cluster more than others. Cost factors can overcome the tendency to cluster, and the relative importance of cost factors, such as low cost water power, versus the advantages of location near other firms, near output markets or near labour markets will vary from industry to industry. v. Agglomeration economies are likely to have an upward bound. After that bound is reached, diseconomies of scale such as high rents, high cost of water power, congested urban transportation may make the centre unattractive for some industries. vi. The upward bound of agglomeration economies varies from industry to industry. A city may become unattractive for one industry while a continuing rise in size will increase its attractiveness for another industry. vii. An important hypothesis of this study is that areas with rich agricultural resources will generate larger cities than others, ceteris paribus. 6. Clustering of manufacturing is limited by the costs of transporting output to the market. a. When goods were produced for the local market, a city could grow so long as the increasing benefits of agglomeration economies overcame the increasing costs of transporting output to more distant purchasers. b. The balance of geographic costs, agglomeration economies and transportation costs would have allowed some cities to produce goods for the market in the sub-region or region, or even to export manufactured goods to international markets. The size of its own hinterland and its ability to encroach on the hinterland of neighbouring cities would not influence the extent of agglomeration economies in these cities. These cities would further reap the benefits of increased agglomeration economies, ceteris paribus. 7. As time passed, manufacturing became less dispersed due to changes in transportation costs and in agglomeration economies. a. Transportation costs fell with technological change and with investment in transportation networks. b. As transportation costs fell, cities with larger agglomeration economies could displace neighbouring cities with smaller agglomeration economies. Each city had a transportation advantage in its own hinterland. If it became larger than a neighbouring city, reduced costs due to agglomeration economies would allow it to encroach on the neighbouring cities hinterland. c. The economies of scale of individual enterprises in established industries increased, so that firms required larger markets for their output. Industries with large economies of scale became viable as the Canadian market grew. Therefore districts and small cities became less attractive to manufacturing establishments, and larger cities became more attractive. d. The reduction of dispersion of manufacturing proceeded first by the movement of manufacturing from the countryside to towns, secondly by the movement from small towns to larger cities. Different industries moved at different rates. e. Eventually, the reduction in dispersion of manufacturing influenced the balance between regions. Transportation costs became low enough and agglomeration economies (including the economy of scale of individual plants) became large enough that firms in more favoured regions were able take over the markets of firms in less favoured regions. The Maritimes evolved as follows. The story of the Maritimes, according to this framework proceeds as follows: 1. In the early 19th century, the industrial structure of the Maritimes was similar to that of central Canada. a. A hierarchy of cities emerged producing a range of manufactured goods for local markets. Cost factors permitted lumber and ships to be produced for external markets. b. Lower overall incomes and access to the sea reduced the potential profitability of railroads, so that the hinterlands of individual cities did not grow as rapidly as in Ontario. That is, investors did not anticipate that the market for transportation services would be large enough to make investment in railroads profitable, even after markets grew in response to transportation improvements. Therefore a rationale decision to limit investment in railroads was made. c. Cities in the Maritimes found that transportation costs to external markets were lower and transportation costs to local markets were higher than in central Canada. This balance favoured the export of manufactures such as lumber, but increased competition from imports for goods such as clothing. d. Lower agricultural incomes in individual districts and areas, lesser development of internal transportation and lower transportation costs in imports meant that cities and the scale of manufacturing were smaller than in Central Canada. e. The ability to export some manufactures offset the scale problems. However, new world manufacturing could only compete with old world manufacturing in a narrow range of goods due to the higher cost of labour and capital in the new world. 2. Completion of the ICR and increasing tariffs altered conditions for the Maritimes. a. Lower transportation costs permitted firms in many cities to expand production through the region and into Montreal. Heavy industry based on coal was at an advantage in Quebec where coal was relative expensive and water power relative cheap. Ontario's access to mid Western coal gave it similar advantages. Therefore the two regions could compete in Quebec. The growth of the steel industry under the protective structure implemented in the 1890s illustrates this process. b. Exclusion of foreign imports and improvement in internal transportation allowed production for the regional market to expand. Investment in textile mills illustrates this process. c. At the same time production for foreign markets became less attractive. i. The increased profitability of production for the Canadian and local market drew capital out of industries geared to international markets. ii. As imports fell due to increased tariff protection, balance of payments forces make exports less attractive, reducing the profitability of export oriented industries. The decline in shipbuilding and hsipping likely resulted from these factors. d. Industry expanded rapidly, but shifted from foreign to Canadian markets. 3. In the 1920's manufacturing collapsed in the mARITIMES a. The rise of petroleum and hydroelectricity and the reduction in importance of coal reduced the geography cost advantages of the Maritimes. b. The West increased Central Canada's regional hinterland, giving if far larger agglomeration economies than could be captured by the Maritimes. c. Natural freight rate advantages in the Maritimes caused by the highly competitive nature of competition (a la Cruikshank) rather than by policy of the ICR (a la Forbes) were removed by a policy decision from Central Canada. d. Declining transportation costs and rising agglomeration economies reduced the viability of much of the Maritimes manufacturing. 4. Policy decisions during World War II reinforced the process. The maritims were deemed unsuitable for manufacturing by C.D. Howe, and additional advantages of investment in manufacturing were given to central Canada. The advantage of the centre over the region was solidified. Little manufacturing is competitive in the region because it lacks necessary agglomeration economies.