Download As a proxy measure for economic integration, we have constructed

1
Economic Integration and Cross-Border Policy Convergence at the Subnational Level?:
Environmental and Social Policy in the Canadian Provinces and American States, 1980-2000
SUMMARY
Across western industrialized countries, the degree to which economic integration constrains the
policy latitude of governments to adopt distinctive, domestic policy choices has become an issue of
central concern for governments and citizens alike. In Canada, increasing economic integration with the
United States over the past two decades has made the relationship between economic integration and
policy convergence a pressing issue both for Canadian governments at the federal and provincial levels
(note the Globalization and North American Integration components of SSHRCC/Policy Research
Initiative’s joint Project on Trends; Industry Canada/Policy Research Initiative’s joint North American
Linkages program) as well as the broader Canadian public (Ekos, 2001; Graves, 2001).
There is now increasing scepticism that deepening economic integration is generating policy
convergence across western industrialized countries. Similar scepticism has emerged in Canadian
debates regarding the convergent effects of continental economic integration on public policy at the
national-level. However, there are several reasons to suspect that cross-border convergence would
emerge earlier and more forcefully at the provincial rather than the federal level. Thus, examining
patterns of cross-border policy similarity and difference at the provincial level relative to American
states may well be a better test of the linkage between economic integration and policy convergence than
national-level comparisons.
This program of research will contribute to current understandings of the relationship between
continental economic integration and Canadian public policy through an examination of social and
environmental policy over the 1980-2000 period for evidence of cross-border patterns of policy
convergence between individual Canadian provinces and the American states to which they are most
closely linked both geographically and economically. First, across provinces and across time, the
program will investigate whether policy similarity between Canadian provinces and American states is
2
greater in those cases where provinces experience higher levels of cross-border economic integration.
Secondly, across policy sub-fields, our research will examine whether policy convergence has been
greater in those policy sub-fields (within the broader social and environmental policy fields) which are
more decentralized and where provinces have greater latitude to undertake convergent policy
adjustment.
Should such an examination reveal patterns of cross-border convergence not evident at the
national level, it would constitute a substantial challenge to arguments sceptical of the convergent
effects of economic integration which currently exercise significant influence in Canadian policy
debates. On the other hand, contrary findings would constitute considerably more conclusive evidence
than currently exists that economic integration does not foster policy convergence. In either event, the
findings will also have crucial implications for current debates regarding the effects of federalism (and
relative levels of centralization/decentralization) on public policy in Canada which, in the contemporary
context, hinge on the critical issue of the relative ability of the federal and provincial levels of
government to maintain their policy latitude in the face of constraining pressures resulting from
economic integration. Thus, the findings will be of crucial interest both to policy-makers and the broader
Canadian public in terms of their relevance both to debates regarding the impacts of continental
economic integration as well as those regarding the impacts of shifting patterns in the federal-provincial
balance of the Canadian federal system. These issues are of even increased salience as Canadian public
debates have turned to considerations of even deeper Canada-US integration.
3
OBJECTIVES: 1.) To contribute to the understanding of the relationship between continental
economic integration and Canadian public policy. This program of research will help redress a
significant empirical gap in the Canadian literature on the effects of economic integration on public
policy at the provincial level. Secondly, it will provide strong analytical leverage regarding the
relationship between economic integration and public policy more generally. 2.) To contribute to an
understanding of the relationship between federalism and public policy by examining the manner in and
degree to which federalism, as a domestic political institution, mediates external forces such as the
pressures generated by economic integration. 3.) To augment the existing stock of empirical knowledge
regarding similarities and differences in the substance of social and environmental policy (levels of
social provision/environmental protection and the policy instruments used to achieve these ends) as well
as patterns of convergence/divergence over time between Canadian provinces and the American states
with which they are most tightly linked both geographically and economically.
CONTEXT. The Existing Literature. The degree to which globalization fosters policy
convergence has been a central focus in the comparative international public policy literature. (See
Skogstad, 2000 for an excellent overview.) In Canada, increasing continental economic integration has
made the relationship between economic integration and policy convergence a central focus for
Canadian policy analysts. (See Watson, 1998; Banting, Hoberg and Simeon, 1999; Hoberg, 2000;
Teeple, 2000; Skogstad, 2000.) In her “field analysis” of public policy in the Canadian Journal of
Political Science, Skogstad, rightly in our estimation, identifies “[d]eveloping a fuller portrait of how
domestic policy making has been affected by Canada’s experience in the North American regional bloc
and the international political economy” as “the challenge for Canadian policy analysts.” (2000: 828,
italics added) Despite the centrality of this issue to the field of public policy, existing literature and
research still requires more extensive development: “[v]iewed against the broader scholarly debate,
4
much of the Canadian discussion is speculative and rhetorical, subject to bold assertions and dire
warnings. Conceptually clear and empirically informed studies are in short supply.” (2000: 806)
While initial analyses tend to link economic integration and policy convergence, the newly
emergent conventional wisdom, based on a substantial body of literature, is sceptical of the proposition
that deepening economic integration is generating policy convergence across western industrialized
countries. (For an overview, see Boychuk and Banting, 2001) Existing research examining social and
environmental policy in Canada and the United States tends to echo these findings. (Banting 1997a,
1997b; Banting, Hoberg and Simeon, 1997; Boychuk 1997, 2000; VanNijnatten, 1999.) A second more
sophisticated wave of convergence arguments are now emerging. (See especially Howlett, 2000.)
Studies on both sides of this debate generally have adopted a focus on national-level programs.
There are several reasons to suspect, however, that cross-border convergence would emerge earlier and
more forcefully at the provincial level rather than the federal level. (Boychuk and Banting, 2001)
Provinces control some of the most important policy levers for adjusting to increasing economic
integration and competitive pressures. Secondly, provinces have distinct economic structures and
trading patterns requiring unique policy adjustment. Provincial governments are arguably more
sensitive than the federal government to the competitive pressures generated by cross-border economic
integration and competition. Thus, according to Courchene, provinces will increasingly tailor their
public policies to the patterns prevailing in the U.S. states with which they are increasingly integrating
and/or competing. (Courchene and Telmer, 1998, 289-91) Following this reasoning, cross-border
convergence will be greater in more decentralized policy areas where provinces have more scope to
undertake convergent policy adjustment.
Thus, examining policy at the provincial and state level provides a harder test of the literature
regarding the linkage between economic integration and policy convergence than national-level
comparisons. The findings will have crucial implications for current debates in the literature regarding
5
the effects of federalism (and relative levels of centralization/decentralization) on public policy in
Canada which, in the contemporary context, hinge on the critical issue of the relative ability of the
federal and provincial levels of government to maintain policy latitude in the face of pressures resulting
from economic integration. (See Banting, 1997c; Noël, 1999; Boychuk, forthcoming) The findings will
be of crucial interest both to policy-makers and the Canadian public in general as Canadian debates have
recently turned towards considering the possibility of even deeper integration with the United States.
Theoretical Perspective. The research program is firmly grounded in a neo-institutionalist
perspective – examining the manner in which and extent to which “…the organization and character of
political institutions play a critical role in determining policy outcomes in Canada.” (Atkinson, 1993: 3)
Our approach is institutional in the assumption of the central hypothesis that the effects of economic
integration will vary by policy area depending upon the institutional attributes (centralization versus
decentralization) of that policy area. Institutional approaches have been influential in the literature
examining the responses of Canadian governments to pressures generated by continental economic
integration. (Skogstad, 2000: 819) Skogstad notes that one of the preoccupations of the literature has
been “the intervening role of federalism as a transmission belt between globalization and domestic
policy.” (Skogstad, 2000: 820) However, this literature has focused on the effects of global and
continental economic integration on the operation of the federal system per se such as the arguments that
economic integration creates increased federal-provincial conflict (Skogstad, 2000: 820), contributes to
a hollowing out of the role of the federal state relative to provincial governments, or undermines support
for regional redistribution through federal-provincial transfers. (Robinson, 1995) Rather than making
federalism and its operation the dependent variable, our approach is innovative in clearly focusing on the
role of federalism as a political institution in mediating the effects of continental economic integration
on public policy.
6
METHODOLOGY. Research Proposition and Hypotheses. The debates regarding the
linkage between economic integration and policy convergence outlined above generate two central
research propositions: 1.) higher levels of cross-border economic integration between individual
provinces and their American state counterparts will correspond with higher levels of cross-border
policy convergence between those jurisdictions; 2.) there will be higher levels of province-state policy
convergence in policy fields which, in Canada, are more decentralized.
Research Design. An empirical examination of the effects of these two independent variables on
the degree of policy convergence between Canadian provinces and American states poses three specific
requirements for research design: A.) Examining the policy effects of deepening economic integration
requires an examination over time. Research will focus on the period 1980-2000. First, this is a
manageable period of time with five points being examined at five-year intervals (1980, 1985, 1990,
1995, 2000). Secondly, it allows for a reasonable period both before and after the accelerated rate of
economic integration occurring in the wake of the FTA (1988) and NAFTA (1993). B.) Selecting policy
areas which meet the following criteria: they must be policy areas where existing literature leads one to
expect that increasing economic integration would generate significant pressures toward convergence;
and they must include policy areas across which the degree of decentralization varies. C.) Identifying an
appropriate subset of American states for examination in order to ensure the manageability of the
program.
Policy Areas. In our estimation, two strong areas for an examination of the convergent effects of
cross-border economic integration at the subnational level are social and environmental policy. (Two
policy fields are proposed in order to increase the reliability of the findings as well as the resulting
generalizations that will be drawn.) First, both ought to be particularly sensitive indicators of CanadaUS policy convergence since they are seen to be key elements in determining competitive advantage.
Social policy is tightly intertwined with labour market flexibility and encompasses several of the areas
7
identified by Courchene as being key to divergent responses to economic integration (Courchene with
Telmer, 1998; 291). Environmental policy is an important determinant in shaping production processes,
may impose significant additional costs on business, and, thus, may also significantly alter the
competitive environment. It is for these reasons that “[c]oncern about harmonization in each of these
areas was central to the debate” over the FTA in 1988 and NAFTA in the early 1990s. (Hoberg, Banting
and Simeon, 1999: 2) Social policy and environmental policy have become standard foci in nationallevel analyses and, thus, they are a natural focus for an alternative approach potentially challenging the
conclusions of national-level analyses. Secondly, there is significant variation in the degree of
centralization across various sub-sectors within these broad fields allowing for a consideration of the
effects of this independent variable on policy convergence.
Within each broad policy field, we have specified three sub-sectors for particular focus. Social
policy: income maintenance (including employment insurance, social assistance, and workers’
compensation); post-secondary education; and health care. Environmental policy: pollution control;
waste management [solid and hazardous]; natural resource management. These sub-fields have been
chosen in an attempt to balance two criteria: 1.) ensuring that together these sub-sectors are significantly
representative of the broader policy field; 2.) maximizing variation in level of centralization as one of
the two independent variables. While part of the research program is to rigorously categorize levels of
centralization in each policy sub-field, our initial research indicates that the degree of centralization
varies significantly within and among these policy fields. Thus, there is sufficient variation in levels of
centralization to generate robust findings regarding the relationship between this variable and levels of
policy convergence.
Selection of States. States to be included will include geographically contiguous border states,
the top ranking state in terms of merchandise trade with each province (outlined below), and the top
competitor state(s) identified in our survey of provincial governments (outlined below). We anticipate
8
the inclusion of approximately ten American states in addition to the ten Canadian provinces in order to
examine approximately 16 to 18 province-state pairs.
As a proxy measure for economic integration, we have constructed an index of state-province
trade interdependence based upon combined imports and exports of merchandise traded between
provinces and individual states (measured as a proportion of provincial GDP.) While quantifying the
increasing aggregate totals of merchandise trade with the US for each province, the index also measures
the concentration of trade with individual states to determine whether trade with American states has, for
each province, become more extensive across states or more intensively focused on particular states.
[This index focuses on merchandise trade as similar data for goods and services is not available. This
follows the approach taken in McCallum, 1995; Helliwell, 1998; Acharya, Sharma and Rao, 2001. Data
is available from Statistics Canada, 2000.] States selected for inclusion in the public policy comparisons
will include all top ranking states in terms of provincial merchandise trade with US states – except
where trade between a province and its top ranking state is considerably below average relative to other
provinces and their top ranking state trade partners.
High Levels of Trade: Newfoundland-Massachusetts, PEI-Massachusetts, New Brunswick-Maine, New
Brunswick-Massachusetts, Quebec-New York, Ontario-Michigan, Ontario-New York, BC-Washington;
Geographical Contiguity*: Quebec-Vermont, Quebec-Maine, Manitoba-Minnesota, Manitoba-North
Dakota, Saskatchewan-North Dakota, Saskatchewan-Montana, Alberta-Montana, (* not already
included also high-trading pair)
Provinces may also undertake policy adjustment in reaction to competitive pressures from
American states in the absence of merchandise trade between the two jurisdictions. In addition,
provinces compete with states not only through trade but also for capital investment. In order to account
for such competitive pressures, we will undertake a written/telephone survey of the ten provincial
governments asking them to identify the American states which they view as their top competitors both
9
in terms of trade and capital investment. The states identified will also be included in the examination.
We do not, however, anticipate significant additions to the list of province-state pairs outlined above
resulting from this survey.
Empirical Methodology. In each policy sub-sector, there will be two complementary strands of
empirical research – one focusing on rigorously characterizing the degree of centralization (relative roles
of central and provincial/state governments) and one focusing on both the level of social provision
(combined central government and province/state policy as provided on the ground). Each strand will
balance quantitative assessment (as outlined below) with qualitative assessments based on more
impressionistic evidence derived from our primary research as well as our overviews of the evidence
provided in the literature on each sub-sector.
Strand One: Centralization in Policy Sectors. The first strand of research will develop rigorous
qualitative and quantitative measures of the level and nature of centralization of each policy sector in
Canada. While we have examined the degree of centralization in the two policy areas (and relevant subsectors) in our earlier works (Boychuk, 1995; Boychuk, 1997; Boychuk, 1998; VanNijnatten and
Boychuk 1998; Boychuk and VanNijnatten, 1999; VanNijnatten and Boychuk, 1999; Boychuk, 1999;
Boychuk, 2000; Boychuk and VanNijnatten, 2000; VanNijnatten, 2000; VanNijnatten, 2002; McIntosh
and Boychuk, 2000; VanNijnatten and Lambright, 2002), these characterizations have been more
impressionistic than rigorously schematized and indicators of centralization were not uniform across
various policy sub-sectors. Drawing on Watts, our approach will differentiate between scope of
jurisdiction (the range of issues over which a specific order of government is given jurisdiction) and
degree of autonomy (the “freedom from control by other levels of government with which a particular
government performs the tasks assigned to it.”) (Watts, 1999: 71) Watts outlines multiple indices of the
degree of centralization in a federation: legislative and administrative decentralization, financial
decentralization, decentralization to nongovernmental agencies, constitutional limitations, and the
10
character of federal decision making.(Watts, 1999: 72) Our approach will adapt Watt’s indicators for
application to public policy on a sector-by-sector basis: legislative jurisdiction (constitutional
distribution of legislative power in sector, exercise of legislative power in sector by level of
government); distribution of total expenditures in policy sector by level of government; nature and
magnitude of transfers in policy sector (unconditional block transfers, conditional block transfers,
formula [conditional cost-shared] transfers); direct spending by levels of government in policy sector;
and regulation in the sector by level of government.
Strand Two: Convergence in Levels of Social Provision and Policy Instruments. As Bennett
notes, examinations of policy convergence may focus on policy goals, policy content, policy
instruments, policy outcomes (impacts or consequences), and policy style (characteristics of the process
by which policy is formulated). (Bennett, 1991; see also, Howlett, 2000.) In considering the convergent
effects of economic integration on the public policy choices of governments, our focus will be on policy
outputs (or substance) rather than policy outcomes (impacts or effects of policy). Federal and
provincial/state policy will be examined together to derive an overall picture of the level of social
provision/environmental protection within provinces and states. The focus will be on degrees of policy
similarity and difference in matching province/state pairs as well as patterns of convergence/divergence
between them over time. However, the examination will balance quantitative indicators of policy with
qualitative assessments of both stated policy goals and policy instruments.
Quantitative focus. Stated policy goals may not accurately indicate the actual level of
commitment made by governments to various policy goals. The quantitative element of the
investigation focuses on indicators of how policy is actually provided on the ground. The quantitative
empirical foci for each of the policy sub-sectors are as follows:

Income Maintenance/Support: social assistance expenditures; levels of benefit receipt (% of
11
pop); eligibility requirements; social assistance benefit rates; unemployment insurance expenditures;
benefit to unemployment ratios; levels of unemployment benefits; maximum and average duration of
benefits. (Primary sources: US House of Representatives Committee on Ways and Means, National
Council of Welfare, Human Resources Development Canada)

Post-secondary Education: public vs. private provision of higher education; sources of university
funding; access to university education; structure of institutions of higher education (colleges and
universities). (Primary Sources: US National Center for Education Statistics on-line, Association for
Universities and Colleges in Canada)

Health Care: total public sector health care expenditures per capita; public vs. private health care
expenditures as proportion of total health care expenditures; public/private hospital and physician care
coverage; control of hospitals (profit, government, voluntary not-for-profit) (Primary sources: Health
Canada; US Health Care Financing Administration, US Bureau of the Census, Statistics Canada, OECD)

Pollution Control: per capita expenditures (overall, air, water); number of personnel (overall, air,
water, enforcement); enforcement activities; air and water standards; emission reduction programs
(Primary Sources: provincial government estimates, Council of State Governments, US Bureau of the
Census, OECD, Statistics Canada, Commission for Environmental Cooperation, environmental agency
business plans, Manufacturers of Emissions Controls Association, Environmental Policy and Law; US
EPA Webspirs data center)

Waste Management: disposal policies (solid waste/hazardous waste); reduction policies (recycling,
deposit, packaging); contaminated site remediation (Primary Sources: State Laws Recycling Update,
Handbook of States Environmental Programs, Environmental Policy and Law, Container Recycling
Organization, Canadian Environmental Directory, agency web sites, US EPA Webspirs data center)

Natural Resource Management: environmental assessment policies (mandatory vs. discretionary);
12
parks and protected areas (acres protected, % of total surface area, expenditures, regulations regarding
use); endangered species and wildlife protection; forestry practices (Primary Sources: agency websites,
Environmental Policy and Law, National Association of State Park Directors, Political Economy
Research Center, US Census Bureau, State Park Information Resources Center, Commission on
Environmental Cooperation.)
Qualitative Focus. Aggregate quantitative indicators may obscure important qualitative
differences among jurisdictions. (Esping-Anderson, 1990; Boychuk, 1995; Boychuk, 1998) Qualitative
examination of policy convergence/distinctiveness will focus both on policy goals (as formally stated by
governments) as well as on governments’ choice of policy instruments within each policy sub-field. In
order to fully consider the relationship between economic integration and public policy, one must allow
for the potential of harmonization or divergence in choice of policy instruments. (Bennett, 1991) In
doing so, the qualitative assessments of policy in the various sub-fields will examine instrument choice
on the basis of a five-fold typology of public policy instruments: direct expenditure (e.g. transfers to
persons, transfers to governments), direct delivery of services, regulation (command and control),
taxation (e.g. tax disincentives, tax subsidies, tax credits), and exhortation (e.g. voluntary pollution
prevention initiatives.) (Adapted from Woodside, 1986; Linden and Peters, 1989; Doern and Phidd,
1992; Howlett and Ramesh, 1995; Pal, 1997.)
13
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