11

ntre for
ource Studies

Queen's University
Kingston, Ontario

The Imp c
~he Mining
Indu tries
on
,
anadian
R. W. BOADWAY

J. M. TREDDENIC

Centre for Resource Studies

Queen's University
Kingston, Ontario

The Impact of the

Mining Industries
on the Canadian Economy
R. w. BOADWAY

HO

J. M. TREDDENICK

9506

C22

863

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, 1977
Queen's University
Design Peter Dom
Price $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, with
the 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 is
being carried out both at the Centre and by contracts with specialists at universities across Canada. The Impact of the Mining Industries on the Canadian
Economy is the first report to arise from this program. It will be followed by
reports on transportation impacts, health and safety of workers, employment
and wages, mineral trade, and related subjects.
The present study attempts to identify the effects of the mining industries
on the economy by examining how the economy would differ if mining did not
exist 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, within
limits, a representation of the behaviour of the economy. The model used also
permits conclusions to be drawn about the effects of taxes and tariffs on mining
and other industries.
It is the goal of the Centre to make the results of professional research on
mineral resource management issues available to policy makers and other interested groups, in a readily usable form. Thus, we are very pleased to present
such a report as the present; though the methodology is necessarily complex,
the authors provide a non-technical explanation of their work and findings for
the genera] reader. Those who are interested primarily in a broad und;erstanding
of 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 those
of the Centre for Resource Studies nor of its sponsoring organizations.
C. George Miller
Executive Director
Centre for Resource Studies

iii

Contents
Preface / iii
Foreword / ix
Summary / x
Resume / xii
1 The Nature of the Study / 1
Introduction / 1
An Overview of the Analysis /2
Some Limitations of the Analysis / 4
2 A Synopsis of the Results / 7
Introduction / 7
The Canadian Economy Without Mining Industries / 8
The Expansion of Mining and Processing Industries / 10
The Effects of the Tax and Tariff Structure / 12
Conclusions / 14
3 A Description of the Model / ',6
Introduction and Overview / 16
Production Functions / 18
Final Demand Functions / 19
Import Supply and Export Demand Functions / 19
The Computational Procedure / 20
The Experiments Undertaken / 23
The Choice of Data / 25

r\

( 4 Measuring the Impact of the Mining Industries / 28

Introduction / 28
Effects to be Observed / 28
Mining Industries Absent: Capital Retai~ed / 31
Mining Industries 'Absent: Capital Removed / 44
The Effects on the Welfare Index / 51
5 The Effects of Expanding Mining and Processing Industries / 53
Introduction / 53
Expanding the Mining Industries / 55
Expanding Mineral Processing Industries / 60
Increasing Supplies of Labour and Capital / 63

6 The Effects of the Canadian Tax and Tariff Structure on the

Mining Industries / 67
Introduction / 67
Distortions due to Tariffs / 69
Distortions due to Commodity Taxes /73
Distortions due to Capital Taxes / 74
The Effects of Eliminating All Tax and Tariff Distortions / 76
Appendix I: The General Equilibrium Model / 79
Notation / 79
The Fixed Coefficient Version / 80
The Variable Coefficient Version / 84
The Welfare Change Measure /85
Walras' Law / 85

8 Classification of Output Changes Resulting from Expanding Mining

Industries / 56
9 Classification of Output Changes Resulting from Expanding Processing
Industries / 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, by

Industry / 94
14 Cobb-Douglas Industry Production Function Parameters / 99
15 Input-Output Coefficients - 1966/ 104

Appendix II: The Choice and Sources of Data / 87

Tariff and Tax Rates / 87
Factor Supplies / 88
Demand Parameters / 90
Production Functions - Fixed Coefficient Version / 97
Production Function Parameters - Variable Coefficient Case / 101
Import Supply and Export Demand Functions / 101
Inter-Industry Wage Rate Differences / 102
Input-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: Capital
Retained / 35
4 Relative Response to Absence of All Mining Industries: Capital
Retained / 37
5 Classification of Output Changes Resulting from Absence of the Mining
Industries: 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 Mining
Industries: Capital Removed / 46

vii
vi

Foreword

This study was commissioned in 1975 as part of a larger project on The NationallmpacLof Mining being ~ by t e Centre for Resource Studies at
Queen'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 to
work with the staff of the Centre. We are particularly grateful for the interest
and encouragement of Dr. Miller. His suggestions, advice, and incisive questions, arising out of an extremely careful reading of our earlier draft, greatly
benefited the final product. The study was also improved by the comments of
two 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 College
where 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. Boadway
Queen's University
John M. Treddenick
Royal 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 and
t!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 rate
fluctuations. 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 economy
at 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 is
deduced by experimenting with the model. For example, the impact of the presence of an industry is assessed in two ways; by testing how the economy
would appear if the industry were absent (i.e. removed from the model), and by
testing the effects of an expansion of the industry. Similarly, the economic results of distortions introduced by the system of taxes and tariffs are deduced
from 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. These
assumptions are all made explicit in the report, however, and they are those
generally used in economic analyses of this type. Hence, though the behaviour
of the real economy cannot be reproduced or predicted exactly, the indications
are 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 of
labour and capital, caused by the test conditions, have profound but circuitous
impacts.
Within the limitations of the analysis, a number of significant indications
emerged. If the mining industries had not existed (provided their capital had

been available for reallocation to other industries) a few industries, mainly

suppliers to mining, would be smaller, but all others would be larger; the general economic welfare of Canadians would be virtually unchanged. If all or part
of the mining capital had been lost, a somewhat different picture emerges: the
same supplier industries would be reduced, while the increases in many other
industries would be less than before, leading to a reduction in general economic
welfare of up to 2.3 percent. Virtually identical but opposite effects arise when
the expansion of mining is contemplated. The often-advocated expansion of
secondary processing improves the general economic welfare slightly (except
for 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 tariffs
discriminated strongly against the mining industries. This inhibiting effect was
shared by most other primary industries and some manufacturing ones. The
service industries were correspondingly favoured. The tax changes which have
occurred 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 industries
minieres influencent r economie canadienne par divers moyens indirects tels
que 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 elles
enll'ent en concurrence avec d'autres industries, et par leur impact sur Ie taux de
change. L'effet economique net est la resultante de toutes ces influences,
Cette etude retrace de fa<;:on systematique taus ces effets sur I'economie
canadienne. L'utilisation de la methodologie d'un modele 'd'equilibre general
de statique comparative' pennet de reproduire de fac;:on tres detaillee la configuration et Ie comportement de r economie canadienne a certains moments
donnes dans Ie temps, (1966 est r annee la plus recente pour laquelle les
donnees sont disponibles). De la, I'effet d' un changement dans r economie est
deduit en experimentant avec Ie modele. Par exemple, r effet de la presence
d'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 de
r industrie. De la meme fac;:on, les resultats economiques des distorsions introduites par notre systeme de taxes et de tarifs sont deduits du comportement du
modele lorsque ces distorsions retirees.
Les resultats de ce tests devraient etre interpretcs avec prudence parce que
Ie comportement du modele peut etre affecte par les nombreuses hypotheses
sous-jacentes. Ces hypotheses sont toutefois presentees de fac;:on tre explicite
dans Ie rapport et eIles sont celles qui sont generalement utilisees dans ce genre
d' analyse economique. Par consequent, bien que Ie comportement reel de
I'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 pas
toujours ceux qui pourraient etre prevus si l'on tenait compte des effets directs
et indirects pris isolement: leur interaction, parfois tres subtile, est importante.
Les fluctuations du taux de change et les changements dans l' abondance rela-

tive du travail et du capital, causes par les conditions de la simulation, ont des
effets profonds mais indirects.
A rinterieur des limites de cette analyse, un certain nombre d'informations
pertinentes ressortent. Si l'industrie miniere n' aurait pas existe (en supposant
que Ie capital disponible eut ete alloue aux autres industries) quelques industries
auraient connu moins d'essor, principalement celles responsables de l'approvisionnement des activites minieres, mais toutes les autres industries en auraient
profite et Ie bien-etre economique des canadiens serait, virtuellement, inchange.
Une image differente se degage dans Ie cas ou Ie capital alloue a I'activite
miniere serait en totalite ou en partie perdu; les memes fournisseurs seraient affectes de la meme fac;:on tandis que la croissance de plusieurs autres industries
serait 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 de
transformation 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 favoriserait
pas particulierement l'industrie miniere.
Un resultat, peut-etre surprenant, montre que r ensemble des mesures
tarifaires et fiscales de 1966 etait tres discriminatoire vis-a-vis l'industrie
miniere. Ceci etait egalement Ie cas pour la plupart des autres industries
primaires et pour quelques industries manufacturieres. Le secteur des services a
ete favorise d' une fac;:on correspondante. Les changements fiscaux intervenus
depuis 1966 n'affecteront en rien Ie caractere de cette observation.

XIII

xii

1. The Nature of the Study

Introduction
The impact of the mining industries on the Canadian economy is felt in many
ways. Most obviously, the mining industries contribute directly to incomes,
employment, capital accumulation, and trade flows. However, though they are
important 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 activity
and as such indirectly influences operations in other sectors through market
mechanisms.
These indirect influences are many. Mining industries, like all others,
purchase products from other industries for use in production processes, thus
influencing the level of activity in these 'backwardly-linked' industries. Mineral
product outputs are provided for the use of other industries or consumers; these
would otherwise have to be imported or not used at all. The degree to which
these minerals are further processed in Canada - 'forward linkages' - is also,
of concern to policy makers. Incomes are re-spent by employees, shareholders,
suppliers, etc., producing 'induced' effects. The export of mineral materials
and the purchase of imported inputs influence Canada's balance of payments
and the operation of the foreign exchange marke :Finally, an effect exists
which has not perhaps been adequately considered in the mineral policy debate:
the mining industries consume certain quantities of the scarce primary inputs of
labour and capital; they thus compete with other industries for their use.
The overall economic impact of the operation of the mining industry (or
any 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 mineral
resources to national economic goals is to be realistically evaluated. This study
presents one such framework.
The primary approach of the study is to evaluate the effects of mining on
resource a1location l in the Canadian economy. In addition, the economic data
I. 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 refers
to the allocation of labour and capital amongst industries and more generally includes the levels
of output and uses of that output for all industries.

yI
---/

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. The
methodology used is that known in the economics literature as general equilibrium comparative statics analysis. A specific model of the Canadian economy is
constructed which will produce an allocation of resources identical to that of the
real economy. Such an allocation is called the control general equilibrium
where the term general equilibrium refers to the fact that demand equals supply
in all markets. 2 In a comparative static analysis, the control general equilibrium
is disturbed by changing one or more of the paranleters of the model. The
mechanics 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 the
parameter change.
The chief drawback of comparative static analysis (as with most economic
analysis) is that the changes undertaken are not performed under laboratory
conditions. Whereas we observe the control general equilibrium in real life, we
cannot 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 behavioural
assumptions about consumers and producers, technological relationships in the
economy, 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 nature
of the model and the experiments undertaken. The following chapter gives a
synopsis 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 selection
of 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 to

learn how the Canadian economy would differ if the mining industry did not
exist. Resources now allocated to the mining indu try could have been devoted
to other industry uses. Our computations will indicate which industries are most
affected by the existence of the mining industry. One shock general equilib-

rium, then, is that equilibrium obtained when the mining industry (or some
specific 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 to
other industries the resources thus released. It is important to state clearly that
we are not contemplating the shutdown of the mining industry as a policy option. Rather we attempt to assess how the economy would have evolved had
--mining 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 mining
industry 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 The
input-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 it
works its way through the input-output tables.
Such studies, however, ignore additional important influences that the
mining 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 the
economy faces a constraint in primary resources or factors of production (unless
there 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 these
resources will adjust to give an equilibrium price of labour (wage rate) and
price of capital (rental rate) which will ration out the available supplies of
labour and capital to their best uses. The mining industry will influence the
outputs of other industries both by making less of these resources available to
them and by changing the relative prices at which labour and capital may be
purchased. For example, if mining uses large amounts of capital (relative to
labour) compared with other industries, the overall effect of the mining industry
will be to cause the price of capital to rise relative to that of labour. In turn, this
higher 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 relative
prices of labour and capital will affect the final prices of the various industry
outputs differently. And when relative prices change, patterns of final demand

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

3. Studies of this nature include M.W. Bucovetsky,'A Study of the Resource Industries in the
Canadian Economy', Working Paper 7301, Institute for the Quantitative Analysis of Social and
Economic Pol icy, University of Toronto; J. Stahl, 'The Mineral Industry and Economic
Development" , Department of Energy, Mines and Resources, December, 1974, (mimeo); and
L.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.

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 resource
constraints in the economy, are incorporated into our general equilibrium model
in addition to the inter-industry linkages mentioned above.
One final influence of the mining industry which is of obvious importance
in the Canadian economy is that which operates via foreign trade. The shock
equilibrium (i.e. if mining did not exist) will involve different amounts of both
imports and exports. Industries which previously used domestically produced
materials 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 a
change 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 act
as the equilibrating device. The change in the exchange rate from shocking the
system by shutting down the mining industry will indicate the overall impact of
that industry on the balance of payments.
The details of the model in which all of the above effects are incorporated
will be left until chapter 3. Our main experiments with the model are to shut
down 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 and
tariffs on the mining and other industries by removing them and looking at the
shock equilibrium. Additionally, we test the effect on the economy of inducing
further processing of minerals in Canada rather than exporting them to be processed abroad. Finally, we consider how additional capital or labour resources
made available to the Canadian economy would be most efficiently allocated to
different 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 total
Canadian economy is divided up into fifty-six industries, each of which utilizes

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 place
on competitive markets. On each market a price is estab.lished ~hlch Just clears
the market (makes supply equal demand). Firms maximize profits and consu~
ers maximize well-being. Labour and capital are homogeneous resources which
may be used in any industry and which are mobil~ among industries ..The
model 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 pnmary
industries may represent a pure rent element. Furthermore the natural reso~rce
in question is not mobile between industries in the same way t~at reproducible
capital is. The importance of this omission is still a matter of dispute amongst
economists. For example, much of what is normally called rent may actually
reflect a reward for exploration and development, so the rental element may not
be 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 rather
than at changes in the economy over time. The conceptual nature of the shock
solution is that it indicates how the economy might have looked had the shock
model of the economy existed now rather than the control rr:odel. It should not
be 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 abstracts
from 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 thll1gs
been 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 ef5.
6
.
7.

The fifty-six induslries are listed in table I.

.
. I
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 recent
year for which the requisite input-output data were available. Since structural changes In the
slowly
to. be
Iy develop
economy o
n
, we consider the qualitative results
. obtaIned
.,
d applIcable
f
. to. a
IS In the flel 0 taxatIOn, In
broad spectrum 0 f years, an d notJ'ustl966 . An obvious. exceptIon
.
which major revisions have taken place since the year In questIon.

f 'ct rath 'r than th cll1lrol assumptions? f;' r example, if the shock general
equilibrium involved operating without the mining industry, would the ame
amount of apital have been available for use elsewhere? it might not have
been, given that much of the capital came from foreign sources. To test this
point, we have performed our computations under three alternate sets of assumptions. In the first, the aggregate supplies of both labour and capital were
assumed to be the same in both the control and shock general equilibria. In the
second, 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 third
experiment 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 incorporated
into 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 the
latter, 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 we
have had to choose parameters for our demand and production functions somewhat arbitrarily. However, sensitivity tests that we have performed indicate that
the results are not overly sensitive to the parameters chosen. Chapter 3 contains
a full discussion of the nature of the demand and production functions and the
parameters chosen for them.
Nevertheless, despite these limitations the results we obtain are qualitatively very significant. They indicate the industries which benefit most from the
existence of the mining industries. They also show the 'opportunity cost' of the
existence of the mining industries, in the sense that they show which industries
would have acquired the resources now used in mining industries had the latter
not existed. Our results indicate the effects on resource allocation of expansions
of both the mining industries and the processing industries. Finally, we obtain
estimates of the extent to which the 1966 set of taxes and tariffs discriminated
against mining vis-a-vis other industries. All of these findings are important to
policy makers in laying out a strategy for mineral policy in the future.

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 - and
their 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 pnces
would 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 and
tariff policy on mining industries vis-a-vis that on other industries. The computations, however, are to be considered hypothetical exercises in the sense
that 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 changed
conditions indicates what the economy might have looked like now had the
changes been in existence while the present economy was evolving.
There are two reasons for this. First, the model is static and looks at the
economy at only one point in time. Any actual change would t~e time to work

6
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 computed
changes might not agree with what would be observed is that we have had to
hypothesize specific functional forms for the production and demand relations
in the economy. Since the empirical evidence is scanty in this area, there is no
way of knowing how accurate they are. However, we have some confidence in
the general qualitative thrust of the conclusions - if not the exact quantitative
results - because all relationships in the model have been made to conform
exactly to the real world at one point: the computed equilibrium for the control
solution exactly represents the economy which was observed in 1966.
The following sections summarize the results that have been obtained for
the 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 brief
description 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 have
evolved in the absence of mining industries individually and in groups, and to
observe how the existing resources would have been reallocated as a result. The
outcomes of all of the shutdowns were amazingly similar. When mining industries are absent, a few other industries suffer a decline in output. These are
mainly industries which are suppliers of inputs to the eliminated mining industries, but also include industries which rely heavily on imported inputs which
become more expensive due to a rise in the price of foreign exchange. The industries declining, in order of percentage decline, were Services Incidental to
Mining, Utilities, Construction, Education, Hospitals, and Health, andRail
Transport.
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 the
relative prices of the two primary resources, labour and capital. For example, if some change in
the economy is reflected in a tighter labour market, the price of labour (wages) rises. If the
price of capital (broadly, the interest rate or return to capital, here called 'rental') stays
constant, then the wage-rental ratio rises.
2. The 'welfare index' is a computed quantity which is a measure of the well-being of the people
in the economy. The exact definition is expressed mathematically in appendix I; broadly, any
reduction in the quantities of various goods available for final consumption is reflected in a
lower welfare index.
3. For a full discussion of these experiments, see chapter 4. Results are displayed in tables 2, 3, 4,
5,6,and7.

capital-intensive input, or combinations of the above. Overall, these tended to

be 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 upon
their comparative sizes. The effects of Metal Mines tended to exceed those of
Non-Metal Mines. Within Metal Mines, Base Metal Mines had the strongest effects.
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 the
particular patterns of increase and decrease. The indirect effects of the absence
of an industry are very important, and include changes in the export/import balance, the exchange rate, and the relative availability of labour and capital. In
all the experiments with mining absent, the price of foreign exchange rose (that
is the value of the Canadian dollar decreased), mainly due to the absence of
e~port sales from the missing mining industries. When all mining industries
were absent together, the price of foreign exchange rose by about five percent.
This rise assists other export industries by making their products appear cheaper
to foreigners and assists import-competing industries by making imports more
expensive to Canadians. On the other hand, industries using imports as inputs
into their production processes are hurt by the higher price of imports. As it
turns 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 of
mining industries are absent. These results are directly attributable to the capital
intensity of the industry removed. If an industry has a capital-labour ratio
higher than the national average (as have most mining sectors), its absence will
induce a rise in the wage-rental ratio by making capital relatively less scarce
compared to labour. Only when Gold,Coal, and Lime are absent does the
wage-rental ratio fall. This effect is due to the low capital-labour ratios of these
industries. An increase in the wage-rental ratio will tend to favour capitalintensive industries and those using products of capital-intensive industries. A
fall in the wage-rental ratio has the opposite effect.
The experiments described above were performed assuming that the capital
employed 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 industry
would not be available to move elsewhere. Only the labour released could be
used elsewhere. In all cases the wage-rental ratio falls because of the labour re-

leased. The exchange rate usually rises, but by less than before (because the
lower wage-rental ratio assists labour-intensive export and import-competing
industries). These experiments, therefore, give us an indication of the relative
importance of exchange rate changes as opposed to wage-rental changes. The
effects on industry outputs are remarkably similar to the case in which capital is
allowed to move elsewhere. Industries increasing the most in the absence of
mining are Motor Vehicles, Machinery, Leather, Textiles, and Clothing, and
Metal Fabricating. The exchange rate changes appear to be a much stronger
factor than the wage-rental changes. The latter does appear to be important in
causing Petroleum and Gas Wells and Agriculture to rise by much less than before, since these are very capital-intensive industries. In addition, industries
that use these products - Petroleum Refining and Food and Feed - rise by
much less than before. Industries which decline when mining industries and
their capital are both absent follow the same pattern as when capital is allowed
to reallocate.
The experiment was also performed of eliminating all mining industries
and removing one half of this capital from the economy. The results obtained
fell roughly midway between the above two extreme cases.
Surprisingly, the change in the welfare index when mining industries are
absent turns out to be relatively low. In no case where capital is retained does
welfare fall by as much as one-tenth of one percent. This happens because the
Canadian economy is closely integrated with world trade. Thus, the absence of
an industry does not have a disastrous effect due to the availability of import
substitutes. 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 were
found by increasing the export demand for the industry's output and computing
the resulting resource reallocation. In the case of mining industry expansion the
pattern of induced resource shifts was virtually the mirror image of the effects
of eliminating the industries. Both the wage-rental ratio and the price of foreign
exchange fell in all cases except that of Gold. The changes in industry outputs
were similar in the case of all mining industry increases. Those expanding were
Services 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:
~..Apparently the 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 and
table 9.

10

resources with manufacturing and primary industries and not so much with service and other tertiary industries. The particular industries declining most when
mining is expanded are (in order of magnitude) Metal Fabricating, Machinery,
Motor Vehicles, Leather, Textiles, and Clothing, Iron and Steel, Smelting and
Refining, 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 to
those of expanding the mining industries. The wage-rental ratio fell (due to the
capital intensity of processing industries), as did the price of foreign exchange.
Those industries induced to expand by the processing expansion were Mining
and 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 intermediate
inputs. The industries which decline were similar to those forced to contract
when mining expanded. Those declining most were capital-intensive manufacturing and primary industries which are heavily involved in trade. In order of
magnitude they were Leather, Textiles, and Clothing, Machinery, Motor Vehicles, Metal Fabricating, Agriculture, Petroleum and Gas Wells, Food and
Feed, Other Electrical Products, Petroleum Refining, and Other Petroleum and
Coal Products. The welfare index rises when all processing industries expand
except 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 and
Refining. One reason for the favourable effect of expanding processing is that,
as we find in chapter 6, the tax and tariff structure discriminates heavily against
processing 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 the
wage-rental ratio to rise as expected. In addition, the price of foreign exchange
rose due to the increased total income in the economy, inducing an increase in
import 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. The
most 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 obvious
reasons. However, the exchange rate unexpectedly falls despite the increased
income and consequent expenditure on imports. Apparently this is due to the
fact that some import-substitute industries are strongly labour-intensive and
benefit 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'/, !Jase
Mel.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 rates
on vanous transactions. 6 Tax payments on products going to intermediate and
fmal uses are employed to calculate effective or average commodity tax rates on
e.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 capital
tax rate). Fmally, tarrff collections, subdivided by industry, are used to calculate average ~ariff rates on the products of each industry type imported. Since
t~xes and tariffs fallon different industries at different rates, all three tend to
dIstort the economy, ~iscriminating against some industries and favouring
others. In order to estimate how each type of distortion affects the allocation of
gIven resources a~o~gst industries we have computed the general equilibria
that .result from ehmmatmg each type of distortion individually (with the others
left m) and then eliminating all tax-tariff distortions together. Because the total
resources 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 following
paragraphs.
When tariffs are removed, the price of foreign exchange rises as expected
and the wage-rental ratio falls, indicating that the tariff structure tends to favour
relatlvel~ labour-intensive industries. The output of all mining industries rises
whe~ tarrffs are removed, due mainly to the assistance to exports from the rise
1Il prrc~ of foreIgn exchange. The tariffs, therefore, discriminate against mining
Industrres. The effect of tarrffs on processing industries is mixed, with three
favoured and three hurt. Smelting and Refining is strongly discriminated against
by tarrffs,. whereas Metal Fabricating is strongly favoured. Presumably the latter effect Isdu~ partly. to the fact that this industry is a supplier of inputs to
manufacturrng mdustrres which are favoured by tariffs. The welfare index actually falls by three-quarters of one percent when tariffs are removed. This is
probably accounted for by the fact that, as mentioned below, the taxes tend to
offset the tarrffs In their effect.
5. For a full discussion of these experiments. see chapter 6. Results of the experiments are
displayed in table 10.
6. See table II.

The slructur of colI/lI/odity taxes appears to have only a sl ight effect on

the mining industries. When they are removed, seven of the twelve mining industries increase slightly while the rest fall. The same slight effect is felt on
processing industries. Smelting and Refining is favoured by removal of commodity taxes to a small extent, and Other Non-Metallic Mineral Products is
hurt to a small degree. The only industries strongly discriminated against by
commodity taxes are those subject to excise taxes -Alcoholic Beverages. Tobacco, and Other Petroleum and Coal Products. The wage-rental ratio falls
when commodity tax distortions are removed, indicating that the taxes favour
relatively 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 on
resource 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 in
almost all the mining industries. 7 Capital taxes discriminate against all processing industries fairly strongly - especially later stage processing - and most
manufacturing industries as well. When capital taxes are removed, the price of
foreign 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 than
the commodity taxes - work to offset the tariff structure.
When all tax and tariff distortions are removed, all mining industries rise
in output substantially, especially Coal and Other Non-Metal Mines. The structure of taxes and tariffs existing in 1966 therefore strongly discriminated against
mining industries. The same is true of all processing industries except Metal
Fabricating. Overall, the tax/tariff structure hurts primary industries and most
manufacturing ones. The wage-rental ratio falls by fifteen percent when these
distortions are removed, indicating a strong tendency for the taxes and tariffs to
increase the returns to labour relative to capital. Surprisingly, the exchange rate
falls by nearly ten percent. Apparently tariff policy is being completely frustrated by the more than offsetting effects of taxes. Finally, the welfare index
falls by less than one percent when all distortions are removed. Thus, the socalled deadweight loss expected to be imposed by these distortions appears to
be entirely absent.

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

12
13

Conclusions
In this chapter we have summarized the experiments which are discussed more
fully in later chapters of this report. It will be useful at this stage to review the
main 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 in

terms 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 shows
that more subtle, yet very important, effects arise, as the industries' operations
influence the import/export balance, the price of foreign exchange, and availability of the scarce resources of labour and capital. The observed effects are
often surprising: they are not necessarily those which would be predicted from
consideration of the direct contributions of the industry.
2. If the Canadian mining industry, or major segments of it, did not exist, the
results 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, Miscellaneous
Manufacturing, iron and Steel, Rubber, and Petroleum and Gas Wells;
iii export possibilities would be greatly reduced, and the Canadian dollar
would fall in value by LIp to five percent;

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

increased:
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 in
the 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), while
causing 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 tax
structure, which favours the service industries;
ii the combined effect is to discriminate strongly against mining industries and
most resource processing. Most manufacturing is harmed to some extent;
iii replacing the present structure by a completely neutral tax and tariff system
would remove the above distortions but the general economic welfare would
be affected slightly, if at all.

II

II'

iv changes in the general economic welfare of Canadians would be quite

small (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: Metal
Fabricating, Machinery, Motor Vehicles, Leather, Textiles, and Clothing,
iron and Steel, and Smelting and Refining;
iii the Canadian dollar would increase in value.

15
14

3. A Description of the Model

Introduction and Overview

In this chapter, a detailed description of the workings of the general equilibrium
model will be given. The model is a fairly complicated mathematical one
whose exact presentation requires some knowledge of calculus and linear
algebra. We shall endeavour to present a complete verbal description of the
model in the text of this chapter for the non-technical reader. The full details of
the mathematical computations are presented as appendix I to this study.
The economy consists of three sorts of decision makers: (i) consumers or
households who own and sell the services of labour and capital (the so-called
primary inputs) and use the proceeds to purchase outputs for final use (called
final demands); (ii) producers or firms who produce outputs from purchased
primary factors and intermediate goods produced by other firms; and (iii) the
government which levies taxes and tariffs and uses the revenues to purchase
goods 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 residents
engage in trade with the rest of the world. Imports are purchased for use as
either intermediate inputs by firms or for final demand, and exports are sold.
The production sector of the economy consists of fifty-six industries, the
details 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 and
salaries + 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 other
value-added is defined to include government goods and services, indirect taxes
(other than commodity taxes) less subsidies, and net income of unincorporated
businesses. 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 for
reasons 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.

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 (net
of tariffs) equals the value of exports plus capital inflows from foretgn sources.
These accounting identities may all be represented in an input-output flow
table shown schematically in figure I. The sum of each column in this table
equals total inputs into each industry and the sum of each row equals the total
outputs. 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 for
value added must equal total final demand (which is simply Gross National
Product). In addition, by dividing each element in an industry column by the
corresponding 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
Interindustry Flows*
Xu X I,2
X 2,1 X2,2

X I,56
X2,56

X 56 ,IX 56 ,2 ...... X 56 ,56

Wages &
Salaries

WI W 2 ....... W 56

Surplus

Sl

Final
Demand

Exports

Imports

Total
Outputs

Ql
Q2

EI
E2

-M 1
-M 2

Xl
X2

Q56

E 56

-M 56

X 56

S2' ....... S56

Other
Value-AddedO I

Total Inputs X I

X 2 . . . . . . . X 56

2 , ....... 0 56

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

16

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 would
have looked like had the perturbations been in effect. We shall first describe the
various functional relationships that are assumed to exist, and then explain how
they are used to compute a general equilibrium corresponding to real world values. The functional relationships to be explained include production functions
relating 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 primary
Inputs (labour and capital) and intermediate inputs (purchased from other
domestic industries and abroad) required to produce varying amounts of total
output for that industry. The combination of inputs actually used depends upon
their relative prices (e.g. if labour is expensive relative to capital, firms will
minimize costs by using techniques requiring comparatively large amounts of
capital and small amounts of labour; that is, they will use capital-intensive
techniques). 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 may
choose 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 produce
outputs. 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) production
functions for primary inputs and Leontief for intermediate inputs. Because of
the above properties, the following propositions can be shown to hold if all
firms minimize costs: 3
i The quantity of each intermediate input required per unit of output (the
input-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

coefficient') is a function of the wage-rental rati0 4 and is independent of the

level of output. The unit labour coefficient decreases with the wage-rental
ratio, 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 in
each 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 the
price of all inputs. The output price is simply the sum of the input prices times
their respective coefficients.
Final Demands Functions
The final demand functions show how the income generated by the economy as
a 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 of
each industry's output should depend upon both income available and the price
of the output. To capture these two influences we have used a particularly simple functional form for final demand, one in which the income elasticities of
demand are unity and the price elasticities of demand are minus unity. 5 This in
turn implies that the proportion of income spent on each industry's output is
constant (regardless of any price or income changes). This type of demand
function, commonly used in input-output studies and elsewhere, was chosen
partly because of its simplicity, partly because it has the desirable properties for
demand functions, and partly because no other reliable empirical estimates of
industry demand functions are available.
Import Supply and Export Dcmand Functions
The import supply and export demand functions show how the world price of
imports 6 is related to the quantity of imports purchased by Canada and how the
world price of each industry's exports is related to the quantity sold. In the case
of imports, the world price is positively related to the amount bought; with exports, the relationship is negative. The exchange rate which converts Canadian

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

4. The wage rate is the average wage rate in the industry and the rental rate is the price of a unit
of 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 in
the demand for each good. Therefore the increase is spent in the same proportions as income
already 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 price
using the Canadian exchange rate.

18

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 values
for 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 all
products, labour, and capital), and the balance of payments requirements, this
model of the economy can be solved simultaneously for all market clearing
prtces (output prices, wage rate, rental rate, and exchange rate). Only a basic
outlineof the method of solution is given here. For a complete description, the
reader IS referred to appendix 1.
The solution involves finding a set of prices and resour~e allocations such
that all the above functional relations, pricing equations, market clearing conditions, and the balance of payments are satisfied and, of course, all the available
primary resources are used up. Ultimately, it turns out that all prices and allocations depend directly or indirectly upon the wage-rental ratio. Therefore, the
trick 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 is
well-known in the economics literature that a general equilibrium in the
economy 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 not
affect 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 absolute
price level is indeterminate. A common analytical way to proceed is to select a
particular price in terms of which all other prices are to be measured. The good
or input whose price is thus chosen is called the 'numeraire.' In our computations, we have selected capital services as the numeraire. 7 Therefore, all prices
are measured relati ve to the rental of capital. One may think of the rental on
capital as being unity for simplicity (since it is perfectly arbitrary). In the ensuing discussion, all prices are expressed relative to the numeraire. They of
course bear the same relation to each other as absolute prices do.
To see how the general equilibrium solution is computed, suppose we

begin with an arbitrary wage rate (i .e., wage-rental ratio).8 We shall use this
wage 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 to
be iteratively changed until the equilibrium were established.
From the given wage rate, the unit labour and unit capital requirements
may 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 a
unit 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 + I
variables, the prices and the wage-rental rate, for the n prices.) In our actual
computations there are two additional problems to worry about - taxes and
other value-added items. We must include in the price determination process all
taxes 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 the
price 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 by
any commodity taxes imposed on the latter (e.g. retail sales taxes, etc.).
Next, an expression for total final demand expenditures is derived. Total
expenditures 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. The
total available labour and capital is known; it is the resource constraint the
economy is working under. From the given wage and rental rates the payments
to labour and capital may be determined. Net capital inflows from foreign
sources are assumed to be given and not to change as the result of any of the
changes we consider. The tariff and tax revenues and other value added are dependent upon the corresponding rates (which are known) and the transaction to
which they apply, which must be determined. For example, tariff revenues
equal the tariff rates times the value of imports of each type; final demand tax
revenues equal the tax rates times the values of final demand; taxes collected on
intermediate demand equal the tax rates times the various categories of intermediate use; and corporate tax collections equal the corporate tax rates times

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

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

20

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 In
order to complete the equation for total income.
Intermediate demands and capital usages are both directly related to total
industry outputs since, for eac.h industry, we know the unit req~ireme.nts of all
intermediate inputs (from the mput-output coefficients) and capital (given. the
wage-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-output
relationship we shoW that total outputs depend linearly on all final demands plus
exports minus imports. This relationship is a standard one used in input-output
analysis and, as shown in appendix I, is derived by solving n simultaneous linear
equations for the n industry outputs in terms'offinal demands plus exports less
imports in each industry. Therefore, the tax and tariff revenues depend ultimately
.
upon final demands, exports, and imports.
Final demands for any industry's output depend upon total mcome and the
price 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 pnce
which may be converted, using the exchange rate, into domestic producer
prices plus the tariff. Since we know the tariff rates and we know the producer
price (given the wage rate) imports and exports depend upon the exchange rate.
However, the exchange rate must be that which just satisfies the balance of
payments. Our procedure is therefore as follows. Given the wage rate, and
hence all domestic prices, we iteratively compute the exchange rate which just
satisfies the balance of payments (e.g. an arbitrary exchange rate is chosen. If
this yields a balance of payments deficit as exports plus capital inflows fall
short of imports the price of foreign exchange is increased, and vice versa. This
procedure is repeated until the balance of payments comes close enough to
clearing.). From this equilibrium exchange rate and the domestic prices and
tariffs the quantities of all imports and exports are calculated from the import
supply and export demand functions.
At this point we have an expression for total income involving several
known 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 assume
that the average personal income tax rale is identical for all industries. Therefore, it has no
distorting effects on the economy and is of no consequence for resource allocauon In our
model. If information were available which suggested that personal tax rates varied over
industries, 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 the
final demand functions. From the final demands, exports and imports, together
with total outputs by industry may be calculated from the market clearing conditions as explained above. Using total industry outputs, the amount of labour
demanded in each industry may be calculated using the unit labour requireents.
The sum of these labour demands by industry would then represent the
aggregate demand for labour by all industries when all commodity markets
have 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 wage
rate 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 have
been reached. 10 From our computations we will know the general equilibrium
values for all outputs, inputs, prices, and the exchange rate.
The Experiments Undertaken
The initial exogenous data used to compute the control general equilibrium are
chosen 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 which
input-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 of
the exogenous data or the structure of the economy and recomputing the general
equilibrium solution.
Those experiments which involve changing the exogenous data include
removing the various sorts of taxes and tariffs as well as changing the tariff
structure. 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 indicate
how that government-induced distortion affects various industries. Thus, one
ought to be able to suggest whether various tax and tariff measures discriminate
against, favour, or are neutral towards the mining industry after all interrelationships in the economy have been taken into consideration. Changes in
the 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 must
also clear. This is known as Walras' Law and is well known to economists. For this particular
model it is proven in appendix I.

23

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

considered.
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 know
where 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 without
any 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 Industry's output in final demand and intermediate use in other industries must
come from imports. In effect, the good becomes a 'non-competing' import. The
input-output matrix is reduced by one row and one column and the inputs of the
non-competing import become a row vector of inputs treated in the same way
as primary inputs. The technical amendments to the above model are fairly
straightforward.
The removal of an industry from the model is a conceptual experiment
whose object is to find out how that industry affects resource allocation in the
economy as a whole. For example, which other industries are most dependent
on this industry via backward linkages? These dependent industries will suffer a
fall in output when this industry is absent. On the other hand, some industries
will have been hampered by the existence of the industry because the latter has
drawn scarce resources which would otherwise have been used by the former.
These industries will find their output increased when the industry in question is
absent. 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 imports
and exports. All of these things are of interest in assessing the impact of the
mining industry on the Canadian economy.
Finally, the general equilibrium model being used suggests a method for
measuring the changes in well-being (or welfare or utility) in a shock general
equilibrium compared with the control general equilibrium. The well-being of
the people in the economy is ultimately dependent upon the quantities of the
various 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 for
measuring 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 by
the 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 the
proportionate change in 'utility' in the economy is a weighted average of the
proportionate change in final demands for goods where the weights are the
shares 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 Statistics
Canada using the fifty-six industry aggregation shown in table I. This particular
aggregation 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 computational
costs involved in solving a more complex general equilibrium system.
The input-output tables themselves include the volumes of all products
produced 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 each
industry's products. From these data we can compute input-output coefficients
for 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 on
taxes and tariffs. The employment data give the quantity of labour (in manyears) employed by each industry in 1966. These data are useful to us since
they enable us to calculate the average wage in each industry from the total
wage payments. Wage rates will differ over industries and we assume that the
proportional differences amongst industries are fixed. It may be difficult to interpret these differences within a framework which assumes that labour is
homogeneous and mobile. Though a higher wage payment in one industry
rather than another may be ascribed to, say, the differing working conditions of
the two, in the real world, of course, these different wage rates are also due to
differences in average skills in different industries. Treating labour as
homogeneous and mobile, as our model and the data force us to do, does not
capture 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 the
system as explained earlier. Corresponding figures for capital employment by
industry and for the entire economy come from the net-of-tax surplus payments
in the input-output table. This actually represents the dollar payment for capi-

25

tal servi<: 'S ov 'I th Y ':II'. The juslil'i<:alion for usin it as th' measure or capital
services in physical terms is given in appendix II.
The data on tax and tariff payments provided by Statistics Canada were the
total commodity taxes ll paid on all transactions and the total tariffs paid on all
import purchases by industry. These are converted into rates by dividing the
payment by the volume of the appropriate transaction. We also obtained taxes
paid out of surplus by corporations. These include both federal and provincial
corporate income taxes as well as provincial mining and logging taxes. They
were obtained from Corporate Financial Statistics /966 and were converted
into '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 general
equilibrium must conform. As mentioned above, the general equilibrium calculation is designed so as to reproduce exactly the observed 1966 Canadian
economy. In order that it does so, the parameters of final demand functions,
production functions, and import supply and export demand functions must all
be chosen in an appropriate way. The choice of these parameters so that the use
of the functions in the control general equilibrium calculation will exactly replicate the real world is a technical matter and is relegated to appendix II, The
Choice and Sources of Data. In addition to explaining the choice of parameters,
this appendix presents all the data used in the study.
o

II. Commodity taxes include federal manufacturing sales lax, federal excise tax, and provincial
excise tax. Provincial relail sales taxes are excluded for lack of data but they are fairly uniform
and not likely to introduce very large distortions.

26

27

4. Measuring the Impact of the Mining Industries

Introduction
The primary purpose of this study is to compute estimates of the effects of the
mining industries on resource allocation in the Canadian economy, both for individual mining industries and for selected groupings of these industries. As
mentioned earlier, the methodology used to approach this problem considers
how the resources available to the economy would have been utilized had the
mining industries not existed. The general equilibrium model outlined in chapter 3 is shocked by removing the mining industry and computing a new general
equilibrium which just uses up the resources released by the absent industry (as
well as by any other industry whose output consequently declines).
In the first experiments, it is assumed that all the resources (both labour
and 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 this
is not entirely realistic, particularly in the case of the mining industries; many
of them were developed by foreign capital which might not have been forthcoming if the mining industries did not exist. We obviously have no way of
knowing the extent to which the economy would have had less capital resources
in the absence of the mining industries. We have therefore experimented with
two 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 use
elsewhere), 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 the
greatest 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 differ
from the control solution in the way primary resources (labour and capital) are
allocated, the outputs and uses of each industry's product, the relative prices of
all 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 no
longer provides any exports. The former has its primary effect in the wagerental ratio, and the latter on the exchange rate. Whether the wage-rental ratio
rises or falls depends upon the relative amounts of capital and labour released
by the absent industry. If the industry is relatively capital-intensive so that the
ratio of capital to labour it employs exceeds the national average, capita] will
become relatively less scarce and labour more scarce in the rest of the
economy. The wage-rental ratio will have to rise to induce employment of all
the labour and capita] released. We known from chapter 3 that relative prices of
the products of all industries depend ultimately upon the wage-rental ratio. If
the wage-rental ratio rises, the relative price will rise for industries which are
labour-intensive or which use, as intermediate inputs, products of industries
which are labour-intensive. Since final demand depends upon relative prices,
the final demands for these products will fall and for others will rise, causing a
change in total outputs in all industries. Total outputs will also be affected by
both the initial change in final demands and the changes in intermediate demands working via the input-output relationships. In the end, the outputs of
some industries will rise and others will fall. In the example given here, outputs
should tend to rise for other capital-intensive industries assisted by the rise in
the wage-rental ratio. At the same time, outputs will fall for industries which
previously sold a significant portion of their outputs to the one which is now
absent (i.e., those that the industry supported via backward linkages).
The above events can be altered somewhat by changes brought about by
movements in the price of foreign exchange. If the industry in question is an
export industry, its absence will tend to increase the price of foreign currency in
order to re-establish a balance of payments equilibrium. The movement of the
wage-rental ratio may make this effect larger or smaller depending on the
capital-intensity of exporting and import-competing industries. If these are
labour-intensive, the rise in the wage-rental ratio will increase their relative
prices 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-competing
industries (by making imports more expensive for domestic residents). Combined with the above influences, they will be more beneficially affected the
more capital-intensive they are, the more capital-intensive are their inputs, and
the 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 index

designed to give a monetary measure to the change in 'utility' as a result of the
change in the bundle of final goods purchased when the system is shocked. The
welfare index is constructed as the ratio of utility achieved in the shock equilibrium to that in the control equilibrium. In a perfectly competitive economy with
no price distortions of any kind, we would always observe a fall in utility when
an 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 thus
distorting the allocation of capital. Those with high capital tax rates will likely
have less capital than at the optimum and vice versa. The commodity taxes
drive a wedge between the price purchasers pay and the price sellers receive on
purchases of products for final and intermediate use. Once again, transactions
with a high rate of tax will be discouraged compared with those having low
rates of tax and the allocation of resources will be distorted. Similarly, the
tariffs impose a wedge between the price producers receive and the price paid
to foreigners for the purchase of the same product. Thus, import-competing industries tend to have more resources than they might otherwise. Finally, in our
model wage rates differ over different industries as they do in the real world. At
equilibrium, the productivity of workers will differ over industries because of
the different wage rates. It would profit the economy to move workers from
low 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, in
particular, some resources may be induced to shift into industries previously
discriminated against by the distortions. This type of shift of resources partially
2
counters the welfare-reducing distortion and thus tends to increase welfare.
Therefore, the welfare-reducing effects of the absence of an industry may be
partially 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 the
high wage industries. The high wage is then a payment for the opportunity cost involved in
working in unattractive jobs. To the extent that this is true, the wage differentials do not reflect
distortions but proper prices reflecting true costs. Our welfare index reflects only utility
changes due to changes in the goods consumed. It does not include any changes in welfare due
to 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/Economic
Literature, vol. IX, no. 3, 1971 , pp. 785-97. It is an application of what has been known in the
literature as the theory of second best associated with the seminal article of R.G. Lipsey and
K. 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.

The main results reported in this chapter are the changes in wage-rental
ratio, exchange rate, welfare index, and outputs by industry which arise from
the absence of various mining industries. Each mining industry is treated separately, and, in addition, we experiment with all metal mining industries, all
non-metal mining industries, and all mining industries. The results obtained
from the computations depend upon the parameter values used in the general
equilibrium model. Those reported here use the following parameter values.
The production functions are Cobb-Douglas in labour and capital and fixed
coefficient 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 for
each industry. That is, Canada is assumed to have more influence over export
prices than import prices. The reason for this is that as a percentage of world
markets, exports loom much larger than do imports. All other parameter values
come from actual data on the Canadian economy as documented in input-output
data obtained from Statistics Canada.
We have done some sensitivity analysis on the production functions and
the 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 allowed
using the Cobb-Douglas form. World export and import elasticities of I, 10,
and 25 have been used in various combinations. We have found that, except
when trade elasticities become very large, the qualitative results do not change
much. When trade elasticities are very large, industries tend to be forced out of
business 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 the
proportionate 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 industries
are 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 Functions
Applied to the Canadian Manufacturing Industries, 1926-39, 1946-47', RevielV o/Economics
and 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 more
goods than factors is overdetermined. In general, only as many goods as factors will be
produced. This result is originally due to P.A. Samuelson, 'Price of Goods and Factors in
General Equilibrium', Review 0/ Economic Studies, vol. 21, 1953-54, pp. 1-20. Similar, but
less strong, forces are at work when elasticities are large but not infinite.

31

30

Table 2

Selected Effects ofAbsence ofthe Mining Industries: Capital Retained

(percent changes)
Industry Absent

4.
5.
6.
7.
8.
10.
II.

12.
13.
14.
36.
37.

Base Metal and Other Metal

Mines
Uranium Mines
Iron Mines
Gold Mines
Coal Mines
Asbestos Mines
Gypsum Mines
Salt Mines
Other Non-Metal Mines
Quarries and Sandpits
Cement
Lime
Metal mining industries
Non-metal mining industries
All mining industries

Wage-Rental
Ratio

2.43
0.13
0.29
-0.15
-0.11
0.27
0.00
0.02
0.19
0.05
0.38
0.00
2.58
0.55
3.65

Exchange
Rate

2.48
0.12
0.57
0.01
0.01
0.32
0.01
0.03
0.21
0.13
0.37
0.01
3.43
0.72
4.93

Welfare
Index

0.04
0.01
-0.06
0.02
0.03
-0.01
0.00
0.00
-0.01
-0.01
0.02
0.00
0.03
-0.04
-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, the
capital-labour ratio in the control general equilibrium is less than that for the entire economy. Therefore, by the mechanism described above, the wage-rental
ratio 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 national
average, so one would expect its absence to cause a rise in the wage-rental
ratio. 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 the
input-output relationships.
The industry absence which causes the largest increase in the wage-rental
ratio is Base Metals. It is by far the largest of the mining industries, although
not the most capital intensive. The next greatest effect on the wage-rental ratio
is due to Cement which is, surprisingly, a relatively small industry. It is, however, the most capital-intensive. Overall, metals have a much stronger effect on
the wage-rental ratio than do non-metals and account for the bulk of the effect
of all mining industries. The increase in the wage-rental ratio of 3.65 percent is
surprisingly small despite the apparent capital-intensity of the industries. Apparently, the inter-industry relationships tend to buffer strong tendencies for the
wage-rental ratio to rise when capital-intensive industries are absent.

It is instructive to compare the mining industries with Petroleum and Gas

Wells. 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 is
significantly greater. This is partly accounted for by the higher capital-labour
ratio 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 results
confirm that relative prices tend to rise more in more labour-intensive commodities when the wage-rental ratio rises and in capital-intensive commodities
when 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 account
for a substantial part of the rise. Such an outcome is not unexpected, given the
large 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 this
effect on the exchange rate to the extent that exports and import substitutes are
relatively labour-intensive. One indication that this latter may be the case is the
observation that the smallest increase in the price of foreign exchange occurs in
those industries in which the wage-rental ratio fell - Gold, Coal Gypsum. and
Lime. 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 Wells
causes the price of foreign exchange to rise by about 3.9 percent (more than all
the metal industries combined). That of Agriculture. Forestry, and Fishing
causes 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 for
those 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 the
model. The absence of an industry releases resources which may be used
elsewhere and also reduces the demand for products of other industries used as
intermediate 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

32
33

LJr~

characteristic 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
the various industries tested will be discussed in turn beginning with all mining
industries together and working through to each individual mining industry.

Table 3

34

Industries' Response to Absence of all Mining Industries: Capital Retained

(Absolute Changes)

All Mining Industries Absent

The effects on resource allocation, prices, final demands, exports, and imports
from the absence of all mining industries are reproduced in full detail in tables
3 and 4 which show absolute changes and percentage changes in these items respectively. Our main interest lies in changes in industry output levels and we
discuss in tum those industries which benefit from the absence of mining and
those which are hurt.
As table 3 indicates, the outputs of several industries rise by more than
$100 million when all mining is absent. They include Agriculture (I), Petroleum and Gas Wells (9), Food and Feed (16), Leather, Textiles, and Clothing (20), Pulp and Paper (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). The change is especially large in Motor Vehicles ($516 million), Machinery ($337 million), Metal Fabricating ($249 million), and Leather, Textiles and
Clothing ($248 million). These are the industries to which most resources
would have been attracted from those released by mining. Conversely, one
could say that these are the industries which are most adversely affected by the
existence of the mining industries. They share several characteristics which account for this. Each industry is one or more of the following: highly capitalintensive, a producer of a tradeable commodity (export or import substitute), or
a user of inputs which display the previous two characteristics. Thus, for exampie, Motor Vehicles exhibits all three characteristics, which accounts for the
magnitude of its output change.
We have already explained why these three characteristics are important in
determining the influence on an industry's output. Becaus~ the absence of the
mining industries raises the wage-rental ratio, capital-intensive industries will
be favoured relative to labour-intensive ones. And any industry which uses
these products as inputs will be favoured. Similarly, since the price of foreign
exchange rises, export and import-substitute industries are favoured. There are
as well likely to be many other indirect influences at work operating via the
input-output relationships which we are unable to discern clearly.
It is interesting to note that apart from Agriculture (I) and Petroleum and
Gas Wells (9) all of the strongly affected industries are in the manufacturing
sector. It would seem that to some extent the mining and manufa.s:.turing sectors
compete strongly for the nation's resources. In fact, the output of all manufactunng-industries rises~ mining is absent. Manu actunng industries which

'-,,..

Industry
Number

~!

Labour
Demand
(ManYears)

Capital
Demand
($
Thousand)

2
3
4
5

1368.
1875.
419.
-35585.
-2050.

36702.
5773.
1676.
-433780.
-19819.

6
7
8
9
10

-10883.
-11464.
-5857.
1624.
-6509.

12
13
14
15

Final
Demand
($
Thousand)

Total
Output
($
Thousand)

Producer
Prices

Exports
($
Thousand)

Imports
($
Thousand)

5031.
208431.
-256.
%871.
12941.
-17. \
-309. -972643.
-345.
-55012.

0.0188
0.0287
0.0272
0.0493
0.0493

37313.
968.
1193.
-220206.
-28192.

-87975.
-4482.
-6314.
788454.
27251.

-81642.
-8911.
-8228.
94997.
-54616.

-469.
-104.
-979.
871.
-69.

-389506.
-119443.
-53025.
187326.
-172300.

0.0493
0.0493
0.0493
0.0124
0.0493

-294535.
-93025.
-14494.
16403.
-163105.

106315.
26655.
37351.
-131369.
9616.

-590.
-1257.
-3538.
-6333.
-2403.

-2803.
-6323.
-38079
-27473
-5084.

14.
-263.
-301.
-330
-409.

-9706.
-23996.
-102900.
-124600.
-43691.

0.0493
0.0493
0.0493
0.0493
0.0281

-8817.
-2597.
-49183.
-6172.
16.

-44.
21859.
56330.
116365.
-923.

16
17
18
19
20

3180.
387.
-39
2006.
15552.

24053.
9609.
1735.
8186.
23135.

6148.
2657.
1201.
-151.
-8926.

191476.
31824.
7294.
50418.
247556.

0.0229
00193
0.0204
0.0253
0.0287

13664.
4031.
1023.
574.
2485.

-108809.
-24040.
-3361.
-26144.
-138972

21
22
23
24
25

1739.
373.
2340.
1805.
7019.

6854.
2410.
27511.
7013.
41982.

-377
-2179
-30.
-1450.
-135.

44989
10789.
120517.
38046.
216195.

0.0286
0.0286
0.0246
0.0283
0.0272

11693.
238.
38285.
362.
4599.

-18943.
-9030.
-36630.
-34289.
-72626.

26
27
28
29
30

1644.
710.
303.
381.
10758.

9680.
5.
1817.
1895
32598.

-529.
-9.
-25.
-2106.

130497.
24838.
25693.
16171.
249449.

0.0386
0.0354
0.0339
0.0289
0.0277

11666.
749.
1047.
753.
3918.

-27683.
-7589.
-2885.
-5068.
-138858.

31
32
33
34
35

13743.
12070.
3936.
1549.
7963.

45993.
36693.
6973.
2580.
23133.

-3895.
-6505. 1
-5054.
-1901.
-3641.

.17480.
515620.
77686.
37180.
175220.

0.0266
0.0274
0.0301
0.0290
0.0282

8245.
20094.
5273.
551.
4993.

-304206.
-302773.
-67357.
-28760.
-112874.

~I

35

d.

l
characteristic 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
the various industries tested will be discussed in turn beginning with all mining
industries together and working through to each individual mining industry.

34

Table 3

IndusTries' Response To Absence ofa/l Mining IndusTries: CapiTal Retained

(AbsoluTe Changes)

All Mining IndusTries Absent

The effects on resource allocation, prices, final demands, exports, and imports
from the absence of all mining industries are reproduced in full detail in tables
3 and 4 which show absolute changes and percentage changes in these items respectively. Our main interest lies in changes in industry output levels and we
discuss in turn those industries which benefit from the absence of mining and
those which are hurt.
As table 3 indicates, the outputs of several industries rise by more than
$100 million when all mining is absent. They include AgriculTure (I), PeTroLeum and Gas Wells (9), Food and Feed (16), Leather, TextiLes, and CLothing (20), PuLp and Paper (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). The change is especially large in MoTor Vehicles ($516 million), Machinery ($337 million), MeTaL FabricaTing ($249 million), and LeaTher, TextiLes and
CLOThing ($248 million). These are the industries to which most resources
would have been attracted from those released by mining. Conversely, one
could say that these are the industries which are most adversely affected by the
existence of the mining industries. They share several characteristics which account for this. Each industry is one or more of the following: highly capitalintensive, a producer of a tradeable commodity (export or import substitute), or
a user of inputs which display the previous two characteristics. Thus, for exampIe, MoTor Vehicles exhibits all three characteristics, which accounts for the
magnitude of its output change.
We have already explained why these three characteristics are important in
determining the influence on an industry's output. Because the absence of the
mining industries raises the wage-rental ratio, capital-intensive industries will
be favoured relative to labour-intensive ones. And any industry which uses
these products as inputs will be favoured. Similarly, since the price of foreign
exchange rises, export and import-substitute industries are favoured. There are
as well likely to be many other indirect influences at work operating via the
input-output relationships which we are unable to discern clearly.
It is interesting to note that apart from AgriculTure (I) and PeTroleul1I alld
Gas Wells (9) all of the strongly affected industries are in the manufacturing
sector. It would seem that to some extent the mining and manufacturing sectors
compete strongly for the nation's resources. In fact, the output of all manufacturing industries rises when mining is absent. Manufacturing indu tries which

Industry
Number

... I

Labour
Demand
(ManYears)

Capilal
Demand

Final
Demand

Total
Outpul

($

($

($

Thousand)

Thousand)

Thow,and)

2
3
4
5

1368.
1875.
419.
-35585.
-2050.

36702.
5773.
1676.
-433780.
-19819.

6
7
8
9
10

-10883.
-11464.
-5857.
1624.
-6509.

-81642.
-8911.
-8228.
94997.
-54616.

II

12
13
14
15

-590.
-1257.
-3538.
-6333.
-2403.

-2803.
-6323.
-38079.
-27473.
-5m;4.

16
17
18
19
20

3180.
387.
-39.
2006.
15552.

24053.
9609.
1735.
8186.
23135.

6148.
2657.
1201.
-151.
-8926.

21
22
23
24
25

1739.
373.
2340.
1805.
7019.

6854.
2410.
27511.
7013.
41982.

26
27
28
29
30

1644.
710.
303.
381.
10758.

31
32
33
34
35

13743.
12070.
3936.
1549.
7%3.

5031.
-256.
-17.
-309.
-345.

208431.
36871.
12941.

Exporls
Producer
Prices

Imports

($

($

Thousand)

Thousand)

0.0188
0.0287
0.0272
0.0493
0.0493

37313.
968.
1193.
-220206.
~28192.

-87975.
-4482.
-6314.
788454.
27251.

0.0493
0.0493
0.0493
0.0124
0.0493

-294535.
-93025.
-14494.
16403.
-163105.

106315.
26655.
37351.
-131369.
9616.

0.0493
0.0493
0.0493
0.0493
0.0281

-8817.
-2597.
-49183.
-6172.
16.

-44.
21859.
56330.
116365.

191476.
31824.
7294.
50418.
247556.

0.0229
0.0193
0.0204
0.0253
0.0287

13664.
4031.
1023.
574.
2485.

-108809.
-24040.
-3361.
-26144.
-138972.

-377
-2179
-30.
-1450.
-135.

44989.
10789
120517.
38046.
216195.

0.0286
0.0286
0.0246
0.0283
0.0272

11693.
238.
38285.
362.
4599.

-18943.
-9030.
-36630.
-34289.
-72626.

9680.
5.
1817.
1895.
32598.

-529.
-9.
126
-25.
-2106.

130497.
24838.
25693.
16171.
249449.

0.0386
0.0354
0.0339
0.0289
0.0277

11666.
749.
1047.
753.
3918.

-27683.
-7589.
-2885.
-5068.
-138858.

45993.
36693.
6973.
2580.
23133.

-3895.
-6505.
-5054.
-1901.
3641.

3:37480.
(515620.
776XC,.
37180.
175220.

0.0266
0.0274
0.0301
0.0290
0.0282

8245.
20094.
5273.
551.
4993.

-304206.
-302773.
-67357.
28760.
-112874.

~?72643.

-55012.

-469. )-389506.
-104.
119443.
-979.
-53025.
871.
187326.
-69.
/-172300
14.
-9706.
-263.
-23996.
-301. -102900.
-330. -124600.
-409.
-43691.

~923.

~le

Table 4
3 (continued)

Relative Response to Absence ofAll Mining Industries: Capital Retained

(Percent Changes)

Industry
Number

Labour
Demand
(ManYears)

Capital
Demand
($
Thousand)

36
37
38
39
40

-3992.
-876.
2349.
243.
108.

~56688.

41
42
43
44
45

4483.
8297.
-5317
340.
-1532.

33031.
19599.
15466.
3837.
7675.

445.
-2193.
-53476.
-57.
-237.

185149.
144760.
-52229.
11076.
-1545.

46
47
48
49
50

-900.
122.
-1045.
-450.
-1852.

5272.
15897.
7061.
17493.
-22.

-49.
1130.
-453.
834.
7680.

3625.
23914.
2753.
23582.
-15910.

51
52
53
54
55

-4326.

-17090.
56790.
14537.
-4937.
-8859.

0.0271
0.0076
0.0206
0.0291
0.0272

6220

-1653.
-489.
161.

44326.
22729.
56666.
1021.
23867.

O.
1082.
O.
2072.

-40494.
O.
-48290.

56

O.

o.

-3321

0.0264

11877.

o.

Final
Dcmand
($
Thousand)

Producer
Prices

Exports
($
Thousand)

Imports
($
Thousand)

0.0493
0.0493
0.0291
0.0151
0.0239

-6983.
-1948.
1082.
633.
40.

157251.
11496.
-39618.
-57858.
-3084.

0.0238
0.0273

7871.
2594.

-119614.
-114699.

Labour
Demand

Capital
Demand

Final
Demand

Produccr
Prices

Exports

Imports

2
3
4
5

1.48
2.63
5.47
-100.00
-100.00

5.51
6.71
9.66
-100.00
-100.00

0.55
-0.42
"-0.28
-2.37
-2.37

4.39
3.38
6.71
-100.00
-100.00

1.88
2.87
2.72
4.93
4.93

2.99
2.00
214
-100.00
-100.00

-25.52
-17.95
-19.11
1399.23
61948.77

6
7
8
9
10

-100.00
-100.00
-100.00
12.90
-100.00

-100.00
-100.00
-100.00
17.40
-100.00

-2.37
-2.37
-2.37
1.19
-2.37

-10000
-100.00
-100.00
16.71
-100.00

4.93
4.93
4.93
1.24
4.93

-100.00
-100.00
-100.00
3.64
-100.00

184.97
3498.84
21.68
-30.07
361.02

_I L

12
13
14
15

-100.00
-100.00
-100.00
-100.00
-16.06

-100.00
-100.00
-100.00
-100.00
-12.72

-2.37
-100.00
-2.37
-100.00
-2.37 \ -100.00
-2.37
-100.00
-0.36/ -1527

4.93
4.93
4.93
4.93
2.81

-100.00
-100.00
-10000
-100.00
2.06

-5.19
605.64
93.81
456.39
- 18.42

16
17
18
19
20

1.51
2.48
-0.39
7.29
6.71

5.55
6.55
3.57
11.56
10.96

0.15
0.50
0.39
-0.09
-0.42

2.89
507
1.69
8.85
7.61

2.29
1.93
2.04
2.53
2.87

2.57
2.94
282
2.33
2.00

-22.44
-25.15
-24.31
-20.59
-17.94

21
22
23
24
25

1.89
0.86
2.05
2.20
10.89

5.95
4.88
6.11
6.26
15.31

-0.41
-0.41
-0.02
-0.37
-0.27

2.78
3.74
176 \
3.09
1282

2.87
2.86
2.46
2.83
2.72

2.00
2.01
2.41
2.04
2.15

-(18.01
-18.02
-21.18
-18.30
-19.13

26
27
28
29
30

4.89
14.01
7.24
9.34
7.51

9.07
1855
11.50
13.69
11.78

-1.37
-106
-0.92
-0.43
-0.32

6.38
14.02
8.97
11.18
8.73

3.86
3.54
3.39
2.89
2.77

1.02
1.34
1.48
1.98
2.09

-9.69
- 12.48
-13.70
-17.82
-18.72

31 )

18.22
14.54
6.21
7.64
7.72

22.93
19.10
10.44
11.92
12.00

-0.21
-0.29
-0.55
-0.44
-0.37

19.80
15.89
6.89
8.43
8.96

2.66
2.74
2.01
2.90
2.82

2.21
2.12
1.86
1.97
2.05

-19.62
-18.96
-16.81
-17.75
-18.37

Industry
Number
I

o.

-653.
1320 I.
4268.
899.

-330.
-9.
-471.
6853.
I.

0.0301
0.0278

('' '

0.0249
0.0062
0.0251
00232
0.0136

o.

o.

3819.
2712.

-13741.
-371.

O.
3747.
506.
488
564.

o.
-13703.
-2368.
-5181.
-3137.
-14033.

o.

are slightly less affected than the ones above includ Other Transport Equipment (33), Other Non-Metallic Mineral Products (38), and Petroleum Refining
(39). Then further down, there is Furniture (21), and Leather, Textiles, and
Clothing (19). Some service industries are moderately strongly affected including Finance, Insurance, and Real Estate (53) and Wholesale and Retail Trade
(51). However, in percentages the effect on these is much smaller due to their
large absolute size.
Those most strongly affected in percentage terms are once again mainly
manufacturing industries:.-Petroleum Refining (392J21.6 percent) is the largest,
followed by Machinery_(3U (l~percen0, Petroleum and Gas Wells (9) (16.7
percent), Motor Vehicles (32) (15.9 percent), Aluminum Rolling and Extruding
(27) (14 percent), Miscellaneous Manufacturing (42) (13.6 percent), Iron and
Steel (25) (12.8 percent) and Rubber (19) (11.2 percent).
~here are relatively few industries which are made worse off by the absence of the mining industries. The most obvious one is Services Incidental to

:1'27
33
34
35

37
36

~bl'

4 (,on'in"d)

Industry
Number

Labour
Demand

r
Capital
Demand

Final
Demand

Total
Output

Producer
Prices

Exports

Imports
4004.24
971.99
-1767
-28.18
-21.74

36
37
38
39
40

-100.00
-100.00
4.94
2.28
18.89

-100.00
-100.00
9.12
6.35
23.62

-2.37
-2.37
-0.45
0.92
0.06

-100.00
-100.00
6.49
4.06
21.55

4.93
4.93
2.91
1.51
2.39

-100.00
-100.00
1.96
3.37
2.48

41
42
43
44
45

6.14
12.24
-1.04
0.91
-1.29

10.37
16.70
2.90
4.93
2.64

0.07
-0.28
-0.55
-0.33
-0.26

8.07
13.57
-0.47
2.01
-0.11

2.38
2.73
3.01
2.78
2.71

2.49
2.14
0.00
2.09
2.16

-21.82
-19.09
0.00
-1870
-19.24

46
47
48
49
50

-1.00
4.26
-1.15
-0.32
-3.83

2.94
8.40
2.79
3.65
-0.00

-0.05
1.82
-0.07
0.12
1.07

0.28
8.03
0.20
1.38
-1.08

2.49
0.62
2.51
2.32
1.36

0.00
4.28
2.36
2.55
3.52

0.00
-34.26
-20.77
-22.23
-29.24

51
52
53
54
55

-0.43
0.00
-0.63
-1.00
0.03

3.53
1.67
3.32
2.94
4.01

-0.26
1.67
0.38
-0.45
-0.27

0.59
1.67
1.44
-0.45
1.06

2.71
0.76
2.06
2.91
2.72

2.16
0.00
2.81
0.00
2.15

-19.26
0.00
-24.22
0.00
-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 important
suppliers to the mining industries. In addition, the rise in the wage-rental ratio
will 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 percent
and Utilities (50) by 1.1 percent, but none of the remainder falls by as much as
I percent. Note that Services Incidental to Mining (15) also include services to
Petroleum 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 main
source of these changes. The percentage decline in all imports is roughly the
same for aJl industries (= 17 percent). Similarly all exports increase by about
2-1/2 percent.
In addition, these tables show that the greatest price rises occur in Smelting
and Refining (26), Aluminum Rolling and Extruding (27), Copper and Alloy

Rolling (28), and Other Transport Equipment (33). However, relative price
changes are not very pronounced.
FinaJly, the changes in labour and capital usage for the most part follow
the 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 economy
compared to the ex isting capital-labour ratio in the rest of the economy. As a
result, there are a few cases in which industries use less labour and more capital
to produce more output.
For the purposes of comparison, we also experimented by removing Petroleum and Gls 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), Iron
and Steel (25), Smelting and Refining (26), Metal Fabricating (30), Machinery
(31), Motor Vehicles (32) and Chemicals (41) were all increased strongly while
Services Incidental 10 Mining (15) and Construction (43) were reduced. With
the manufacturing industries absent, all mining and processing industries were
strongly favoured except for Metal Fabricating (30) and Other Non-Metallic
Mineral Products (38). Service and transport industries tended to decline. This
tends 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 of
each industry. The overall results in all cases are so similar that further elaboration of other effects is unnecessary. Table 5 summarizes the main changes in
total outputs occurring for all the experiments conducted. Each row of this table
classifies industries by the magnitude of their total output changes resulting
from 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 are
slightly 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 and
Refining (26) are increased slightly less. In general, metal mines appear to
compete for resources most strongly with manufacturing industries and primary
industries, especially those which are capital-intensive or highly tradeable or
which are purchased from capital-intensive industries. All manufacturing industries find their outputs increased substantially when metal mining industries are

38

39

Table 5

Classification oJ Output Changes Resulting From Absence oJ the Mining Industries: Capital Retained
Industries Whose Output Expanded by: ($ Thousand)

Absent Industry
4. Base Metal and Other
Metal Mines
5. Uranium Mines
6. Iron Mines

7.
8.
10.
I I.
12.
13.
14.
36.
37.

Gold Mines
Coal Mines
Asbestos Mines
Gypsum Mines
Salt Mines
Other Non-Metal Mines
Quarries and Sandpits
Cement
Lime
Metal Mining Industries
Non-Metal Mining
Industries
All Mining Industries

More than
100,000
1.9,30.31.32

80.000100.000
16.20.25,41

40,00060.000

60.00080.000
35.42.53.56

32

1.9.16.20.23.
25-6.30-2.35.
41-2

10,00015.000

23.26.39

19.24.33,38,
51.52.55

6.17.21.47

8,28.34,44.45.49

31

1.9,16.20,
25-6,30.35,
41-2
32

4.23

32
38

20.30-1

31-2

25-6,30

32
32
31-2
1.9.16.20.25.
30-2.35,41-2

15,00020.000

20,00040.000

23.26

53

32

32

33.38-9,51.
52.55
25-6,30

53

33.38-9.51

19.21.52.55

2,17,19.21,
24.34.47
1.9.16.20.
35.41-2
2.17.24.27.
28,34.47.49

31
1.25-6.30.41

25.35
32
1,9,16,20,35,41

25.30-1
20,25-6.30
9,16.20.35

13,27-8.49

29,56

4.33

23,38.53

29

3.22.44

Table 5 (continued)
Industries whose Omput
decreased by: ($ Thousand)

Industries Whose Output Expanded by: ($ Thousand)

Absent Industry

5.000-10.000

1.000-5.000

4. Base Metal and Other

Metal Mines
5. Uranium Mines

13.27.29,46,48,
50
1,9.16.25,26.30.31

6. Iron Mines

2,8.19.21.33-4

7. Gold Mines

2.16.23.26,33,
42.51.55
16.20,25.30-1.35

5.7.10,11,12,14,18,
22.36.40
4.19.20.23.24.33.35.
38.39.41.42,51-3.
55-6
3.13-4,17-8,22,27-9,
36.39,47.52
1.4,7-9.19.21-2,24.27-8.
34.38-9.41,43-4.49.53.56
1.2.4.9.19.21.23-4.26.
33-4,38.41-3.51.53.55

8. Coal Mines

10. Asbestos Mines

4.23.33.38.42.53

1I. Gypsum Mines

2.6.8,13.17,19,21.
24,27-9.34,39,44,47.
49,51-2
20.30-2

12. Salt Mines

32

1.9.16.20,25-6.30-1,
35,41-2

13. Other Non-Metal Mines

1.9.16.20.26,
35,41-2
1,9.16.23.35.
41-2

4.6,8.17.19,23-4,27,28.
33-4.38-9,44.51-3.55-6
2.4.6,7.13.17.19.21.24,
27.28,33-4.38.53.55

14. Quarries and Sandpits

0-1.000

0-1.000
37

2.3.6.7.8,10.11,12.13.
14.17.18.21.22,27.28.29.
34.36,40.43,44,45.46-50
5,7,10-2,37,40
3.5.10-4.17-8.29.36.
40.45-8,54
3,5-7, I0-5, 17-8.22,
27-9.36-7.39.40.44.
46-9.52,54
3,4.7.11-2,14.18.22.
36-7,40.46.48.55
1-10.12-14,16-9.21-9,
33-42.44-9,51.53,55-6
2-8,10-1,13-5,17-9,
21-2,24,27-9,33-4.36.
38-40,43-4.46-9.51-5
2,3.5.7,10-2.14.18,21-2.
29.36-7.40.45-9
3.5.7.10-2.18.22.29,
36.37.40.47.49.51-2

More than
1,000
15,43,54

15,37,54

15,24,49
37

43-6,48,
50-1,53-6
15,50,52

45

50.56

50.54

15.43,45,56

15,43,50,52,54
23.37.45.50.56

54

15,43,50

15,46,48,
50.54

39.43-5.
56

~),

0trj

,r,I

ci 'n

'r:

\0
~ v,

'r)

('f")

('f")

l"")

.q-

'<:'f"

tr'j

-r:
-T

In I,)

v)

tf)

\0 0
'"

'I"l

'N" 00

'I"l

not present. The illlPlll'l 011 olhcr minin ' indu~tries is nol substantial compared
with that in manuf'u<:turing industries.
As with mining as a whole, the absence of metal mining industries tends to
cause 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 mines
are absent, probably due to its relative labour-intensiveness.

'<T'<i;

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

. 0'
00 ' "

The absence of the non-metal mines has once again a similar but much less
pronounced effect, as compared with metals. This, of course, is due to the
smaller magnitude of these industries. The single industry which is most
strongly 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 same
reasons. 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 price
of foreign exchange favours them) or they use as inputs products of industries
having high capital intensities. As with the previous cases, aJl manufacturing
industries rise, all other mining industries rise, and transportation is not very
strongly affected (it having a strong forward linkage to mining).
The industries which suffer as a result of the decline in non-metal mining
are 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 very
labour-intensive. The 'Dummy industry' (56) also declines.

"0

c::
~

::l

o
.<:::
f-o

0'

'<i;
'<T'<T

N .. V.
0'

'I"l

rr:

f'!ob

O\~
~
'<T
0
r-r"'l!J'1C:
'"

'I"l

\0

0\

V"l

~c-r:--:tA
r

r--

~~O\O>

NNVN

'<T

00\Ci

'<T'"

~~
~~

N oo

o~
-

8o

o
I

8
'1)

Individual Mining Industries Absent

~
::l

"0

V>

..s
c

OJ

.~
::l

OJ

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.D

-<

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OJ
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OJ

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00

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~

42

This pattern of similarity of effects is surprisingly borne out when we look at

the absence of each separate mining industry. Consistently the same industries
tend to be strongly favoured and discriminated against. Motor Vehicles (32) is
consistently the most strongly favoured industry when individual mining industries are absent. Machinery (31) and Metal Fabricating (30) are almost as
strongly favoured, followed by Iron and Steel (25), Smelting and Refining (26),
Agriculture (l), and Petroleum and Gas Wells (9). Moderately strongly
favoured industries include Food and Feed (16), Leather, Textiles, and Clothing (20), Chemicals (41), Miscellaneous Manufacturing (42), and Other Elec-

43

trical Products (35). Virtually thc samc industrics m'c alTectcd beneficially in
every 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 far
the largest, followed by Iron (6).
The forces causing particular industries to benefit most from the absence
of the mining industries have already been dealt with in detail above. When any
mining industries are absent, the price of foreign exchange rises, and thus it is
not surprising that industries which produce highly tradeable products should be
favoured. 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 than
to rise, the pattern of industries which are affected strongly remains much the
same. Only Agriculture (I) and Petroleum and Gas Wells (9) are slightly less
favoured, indicating that the change in the wage-rental ratio is of much more
importance for these industries than for the others affected. For the others, the
exchange rate change and the input-output relations tend to be the predominant
influences at work.
The pattern of industries adversely affected is also quite similar, although
there is a discernible difference between the effect of the absence of capitalintensive mining industries (which causes the wage-rental ratio to rise) and that
of other, more labour-intensive, industries. Overall, those industries tending to
fall when mining industries are absent include Services Incidental to Mining
(15), Construction (43), Utilities (50), some transport (especially rail), and
some service industries - especially Education, Hospitals. and Health. (54).
These are either suppliers to mining industries or labour-intensive industries
hurt by the rise in the wage-rental ratio. In addition, they are industries which
do not produce tradeable commodities. The cases in which the wage-rental ratio
falls - Gold (7), Coal (8), Gypsum (I I), and Lime (37) - do not tend to affect as adversely such labour-intensive industries as Education, Hospitals. and
Health (54), and Construction (43).

il
Mining Industries Absent: Capital Removed
As pointed out earlier, treating supplies of labour and capital as fixed may not
be considered very realistic. Some capital which has been accumulated in the
mining 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 industries
were removed and their associated capital was removed as well. Thus, when
the industry is absent only its labour is available for use elsewhere. The effects
of 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.

Tahk 6
Selected c:ITe('(s r!l'llhsellce I!/the Millillg flldllstrie,\':
(I'('/'cellt Challges)

Industry Absent

Exchange
Rate

Welfare
Index

4. Base Metal & Other

Metal Mines
5. Uranium Mines
6. Iron Mines
7. Gold Mines
X. Coal Mines
10. Asbestos Mines
II. Gypsum Mines
12. Salt Mines
IJ. Other Non-Metal Mines
14. Quarries and Sandpits
~6. Cement
n. Lime
Metal Mining Industries
Non-Metal Mining
Industries
All Mining Industries

-0.87
-0.02
-0.36
-0.22
-0.19
-0.14
-0.02
-0.03
-0.10
-0.16
-0.04
-0.02
-1.68

0.44
0.04
0.20
-0.03
-0.02
0.07
0.00
0.01
0.04
0.01
0.11
0.01
0.78

-1.27
-0.05
-0.31
-0.01
0.01
-0.17
-0.01
-0.02
-0.13
-0.10
-0.15
0.00
-1.65

-0.42
-2.15

0.13
1.25

-0.43
-2.28

As would be expected, the wage-rental ratio falls in each case because of

the direct release of labour. Some capital will indirectly be released as a result
of the reduction in outputs of industries linked to mining, but it is never enough
to overcome the effect of the direct reallocation of labour on the wage-rental
ratio. In most cases, the price of foreign exchange rises, reflecting the loss of
exports from the industry. However, without Gold (7) and Coal (8) the price of
foreign 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 be
favoured by a fall in the wage-rental ratio, perhaps so much so as to offset the
reduction in mineral exports.
The changes in industry outputs occuming offer a useful comparison with
the cases in which the capital of missing industries is retained for redistribution
within 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. A
comparison of the two results should give an indication of the importance of the
wage-rental ratio effects on resource allocation, as opposed to those operating
via exchange rate changes and the input-output relations.

44

Wage-Rental
Ratio

apital Rem()\'ed

45

Table 7
Classification a/Output Changes Resulting From Absence a/the Mining Industries: Capital Removed
Industries Whose Output Expanded by: ($ Thousand)

50.000100,000

More than
Absent Industry

4. Base Metal and Other

100.000
31,32

20,25,30,
35,41.42

Metal Mines
5. Uranium Mines

6. Iron Mines

30.00050.000

20.00030.000

9,23,26.33

1.2,6,8,19,21,
24.27,34.38,44
32

20,25,30,31

32

26.35,42

32

7. Gold Mines

10.00020.000

1.4.23.33,41
20,25.30.31.35

8. Coal Mines
10. Asbestos Mines

32

31

5,00010.000
28,29

10.13,17,36,39,40,47

31

1.9.20.23.25.26.30.
33.35,38.42.4
3.13,14,16.17,27,
28,29
2,4,6.8,9,19,21,24,27 ,
28,34,38,41,43,44,49,
51.55
1.2,4,16,19,21.23,26,
33,34.38.41,42,43,5 I,55
1,2.6,8,9, I3. 19,21,23,
27 ,28 ,29 .34 ,38 ,44
20,3 I,32
20.25.26.30,31.33,
35.42
1,4,6.8.9. I9,27 ,28,
33,34,38,41
1,2.4.6.8.16.19,
2 1.23.27 ,28.34,38
1.2,6.9.13,19,21,23,
27,28.29,34,38.44.
45.20
25.26,30,31,32.35,41

2.8,9.19,21,
34,38
1,16,23,26,
33,42

32

20.25,30,31,35

20.25,26,30,35

4.33,41,42

I I. Gypsum Mines
12. Salt Mines

32

13. Other Non Metal Mines

32

31

14. Quarries and Sandpits

32

20,25,30

31

20.25.26.30.
41

32

36. Cement

1.0005,000

20.25,26,30.
35,42
26,31,33,35,
41.42
4.33.35.42

37. Lime

-..l

Table 7 (continued)
Industries Whose Output Expanded by: ($ Thousand)
More than
Absent Industry
Metal Mining Industries
Non-Metal Mining
Industries
All Mining Industries

100,000
20,25,30,
31,32,35

20,25,26.
30.31,32,
35.4 1,42

50,000100,000
9,23,26.
33,41,42
31.32
t .9.23.
33

30.00050.000

20,00030.000

1,38

2,19,21,34

20.25,
26,30
19.2 J.
34.38

35,42
2,24,27.
28

10,00020.000
16.24,27.28.
29
4.33,41
16,29

5,00010,000

1,0005,000

3.13.44

10,14,17.22,36,40,47

1.6,8.9.19.21,
23,27 ,34,38
3,17,44

2,3,24.28,29
22,40,47

..,.
00

Table 7 (continued)
Industries Whose Output Decreased by: ($ Thousand)

Expanded (conL)

Absent Industry

4. Base Metal and Other

Metal Mines
5. Uranium Mines

6. Iron Mines
7. Gold Mines

8. Coal Mines

10. Asbestos Mines

I I. Gypsum Mines

0-1,000

0-1.000

1.000-5,000

More than
10,000

5,000-10,000

15.16,43.48.50-56

3.5.7.11.12,14

22.37

18.45

46.49

2.3.6-8.10.11.13.14.
16.17,19.21.22.24.
27 .38,29,34.36,39,
40,44,47
5,7,10,11,12,22.36,
37.40,47
3,5.10,11.12.13.14,
17,18,22,29,36.39,
40.45,46,47,54,56
3,5.6,7.9-15.17.18,
22,24,27,28.29,36,
37,40.44,48.49.54
3,5,7,11,12,14,17,
22,24,36,37,40.47
1-10,12.13.14.17,21.
22,23,24,25.26,2730.33,34-38.40-42,44

12.15.18.37.41.45.
46.48,49.50,54,55

51-53.56

43

18

15.24.49.54

39,44

37.48,53

50,52

43.45,46,48,50-53,
55.56
15

39,45,46,47,53

50,52.56

16.18

15,39,45.46.
48,49,50.53,54

52,55

43,51,56

15.16.18.39.43,
45-56

..,.

I"

\0

Table 7

(concluded)
Ex panded (con L)

Industries Whose Output Decreased by: ($ Thousand)

0-1.000

0-1.000

12. Salt Mines

1.3-11.13-17.19.21.
22.24.27 .28.29.34.
36,38,40,41,4U5
2,3,5.7,10.11.12.14.
17,21,23.24.29.36.
37.40.44
3.5.7.9-13.17.22.24.
29,36.37.40
3.5.7.10.12,15.16.
17.22.24.37.40
1,2.3-7.9-13.15-19.
21.22.24.27 .28.29.
33.34.38.40.42.43.
44,53-55
11.12

2.18.37.39.45.46.
47-54

23.43.56

18.22.39,45-47.49

15.16,48,50.54-56

51-53

43

15.18.47.49,54

39,44.45.46.48.
50,55
46.48.49,53.54.55

43.51,52.53

56

8.50.51.52

43.56

13. Other Non Metal Mines

14. Quarries and Sand pits

36. Cement
37. Lime

Metal Mining Industries

Non-Metal Mining
Industries
All Mining Industries

5.7.17.22.36.37,40

11.14.18.39.47

1.000-5.000

More than
10,000

Absent Industry

5.000-10.000

8.14.23.36.39,45.
46.47.48.49.50.
51.52

56

37

18.39

49

15.43.45.46,48,
50,51-56

16.44,47

18.46.48.49.54

15.39.45.50
18,39

43,51,52,53.55.56
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 the

results obtained when capital was retained. Once again, Motor Vehicles (32) are
most strongly increased, along with Machinery (31), Leather, Textiles, and
Clothing (20), and Metal Fabricating (30). Next strongly affected are Other
Electrical Products (35), Iron and Steel (25), Smelting and Refining (26),
Chemicals (41), and Miscellaneous Manufacturing (42). These industries were
all strongly increased when mining industries were removed without removing
capital. Apparently the capital intensity of these industries is not after all an
important factor in explaining the strong increase in their output. The rise in the
price of foreign exchange is still an influence in causing these outputs to rise as
are input-output relationships. However, even when the exchange rate falls
slightly, 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 the
strongest 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. For
example, Agriculture (I) and Petroleum and Gas Wells (9) were previously
much more strongly increased when the mining industries were absent but their
capital 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 as
inputs - Food and Feed (16) and Petroleum Refining (39) - are much less
strongly 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 resources
available when some capital is removed. Services Incidental to Mining (15),
Construction (43), Utilities (50), and Rail Transport (45) are strongly reduced
now, as before. Declining less strongly are Truck Transport (46), Other Transport and Storage (48), and Communications (49). These industries are either
suppliers to mining or non-traded goods industries (or both). Those previously
discriminated against mostly due to the rise in wage-rental ratio, but which are
now less strongly affected, are the service industries, especially Education,
Hospitals, and Health (55). But the overall similarity of results indicates that
once 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 have
been accumulated in Canada had the mining industries not existed. The previous experiments considered the extreme cases: first, the capital stock would
have been the same in the absence of mining and second, the capital used in
mining would not have been accumulated at all had mining not existed. We

also conducted an intcrmcdiate experiment in which all mining industries were

absent and one half of the capital that they use was assumed to be available for
use elsewhere (as well as all the labour). The results we obtained were very
close 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 (as
compared 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 by
1.15 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 is
removed are once again predictable from interpolation of the two extreme
cases. Large increases are registered in Agriculture (I), Petroleum and Gas
Wells (9), Food and Feed (16), Leather, Textiles, and Clothing (20), Pulp and
Paper (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 which
fall 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 are
as outlined above.

50

51

The Effects on the Welfare Index

As discussed earlier, changes in the welfare index reflect changes in the utility
level resulting from changes in the quantities and composition of final demands. They do not include utility changes arising from the reallocation of
labour 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 when
an industry is removed. However, as table 2 indicates, our measure shows welfare actually increasing in several cases when mining industries are missing but
all capital is allowed to reallocate. In every case both increases and declines in
welfare are insignificant, never being as much as 0.1 percent.
Welfare falls when all mining industries are absent together and when
non-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 the
other seven cases resources are being reallocated towards industries which are

discriminated against either by the tax and tariff system or by a relatively high
wage rate.
When capital is removed along with the mining industries we have all the
more reason to believe that welfare should fall, since now we are reducing the
amount of resources available to the economy as a whole. In fact, welfare does
fall 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 is
due 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 is
not large. The fact that the products of most industries are readily available
through foreign trade must account for this to a large extent. One must caution
against 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 that
might occur from doing without an industry, such as a change in capital accumulation, growth rate, or pattern of economic development.

'II:':I

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5. The Effects of Expanding Mining and Processing Industries

Introduction
In the last chapter the impact of the mining industries was assessed by a
hypothetical 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 and
processing industries. These results may be more relevant for policy makers
who might be considering measures which may cause an incremental change in
mining 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 close
linkages between the processing and mining industries. More generally, any
fonnulation of a so-called' industrial strategy' for Canada must presuppose
knowledge of the sorts of allocative effects we attempt to compute here. The
computational method of inducing an expansion in the mining industries is to
increase the demand for exports exogenously. 1 The actual computations performed were to exogenously shift the export demand functions by $10 million
for each of the twelve mining industries and six processing industries 2 separately. In each of the eighteen cases, the shock general equilibrium solution was
compared 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 detennined
amount. Alternately. we could have exogenously increased final demand devoted to the mining
industry in question but this would have entailed reducing the share of expenditures devoted to
other 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. and
Other Non-Metallic Mineral Products. These industries are conveniently aggregaled according
to Ihe degree of processing done. Unfortunately. Smelting and Rejining includes aluminum
smelling 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 industry
since it is subsumed under Other Petroleum and Coal Producl.\' and presumably forms a small
part of that industry.

52

53

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There are two important sorts of resource allocative effects to be observed

from 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 fixed
quantity of resources, any increase in resources devoted to, say, mining must
be 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 may
also experience an increase in output thus drawing even more resources from
the rest of the economy.
When an industry's output expands, the price mechanism determines from
which industries the resources it uses are drawn. For example, suppose that the
industry 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 resources
are 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 has
been made more scarce in the economy relative to labour and the wage-to-rental
ratio 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 affected
more strongly than labour-intensive ones. Also, because of the induced wagerental fall, all industries are encouraged to employ more labour-intensive
techniques. 3
In addition to these influences at work due to the effect on the wage-rental
ratio, outputs of various industries are also affected via changes in the exchange
rate and due to inter-industry flows as depicted by the input-output table. The
exogenous increase in exports would be expected to cause the price of foreign
exchange to fall thus discriminating against both import-competing industries
and other export industries. The inter-industry relationships can work either to
the 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 an
industry expands due to an increased demand for its output, its relative price
will rise. Industries which use that industry's product as an input will therefore
be adversely affected.
Those industries which benefit from an expansion of a particular mining or
processing industry will normally do so because of a direct or indirect backward
linkage from mining via the input-output system. If the mining or processing

industry purchases significant quantities of the output of an industry, the latter

may be expected to expand. However, it is possible that other influences may
cause an industry to expand. Thus, when a capital-intensive industry expands it
forces 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 or
import-competing industries as to induce an actual expansion in their outputs.
In the following sections we summarize the effects of expanding first the
ining industries individually and then the processing industries, all by an initial $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 mining
industries tend to affect the same industries both positively and negatively. We
discuss these results by first considering the industries which benefit from mining expansion and then those whose outputs are reduced.
INDUSTRIES WHOSE OUTPUTS EXPAND

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

Those industries which expand when mining industries expand tend often to be
suppliers of inputs into the relevant mining industry. The following cases of
such backward linkages from mining may be cited:
i Services Incidental to Mining (15): This industry increases substantially
from an expansion in Base Metals (4), Asbestos (10), Gypsum (II), and Other
Non-Metallic Minerals (38). It increases by a smaller amount from expansions
in 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 latter
industries 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 and
Sandpits (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 all
mining 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 not
nearly 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

54

55

so from all other mining industries with the exception of Base Metals (4) and
Uranium (5). Once again, inspection of the input-output coefficients verifies
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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 most
obvious 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 other
mining 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 arising
when 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 of
Quarries 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 increase
is not so obvious and presumably has to do with induced effects via the inputoutput tables.

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that the industries causing increases are fairly heavy users of utilities. This is
therefore a fairly strong backward linkage.

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INDUSTRIES WHOSE OUTPUTS CONTRACT

The above cases in which outputs expand are most often traceable directly to
the input-output relationships. One does not need a sophisticated general
equilibrium computation to deduce where strong backward linkages lie. 4 However, when the economy faces resource constraints, one does need some pricing
mechanism to infer from which industries the expanding sectors draw the
needed resources. Such is the justification for employing a general equil ibrium
computational 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 therefore
proceed by considering in rough order of magnitude the industries which are
most 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 Canadian
Economy' and Stahl, 'The Mineral Industry and Economic Development'.

56

57

'II ~

1'1

course, somewhat dangerous to ascribe a particular cause to each industry's decline when so many things are going on simultaneously. The causes given
below 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 that
these are capital-intensive industries and thus suffer from the reduced wagerental ratio. This, however, is not the entire reason since, by inspection of
table 12, we see that other industries have larger capital intensities but are
much less affected. There are probably other indirect influences operating via
the input-output relationships. For example, all these industries use inputs
from capital-intensive industries and therefore face higher input prices when
the wage-rental ratio falls. Such forward linkages may account for much of the
reduction in the outputs of these manufacturing industries. Finally, due to the
fall in the price of foreign exchange, exports of these industries are adversely
affected 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 million
when most expand. Since this is not a capital-intensive industry the source
must be sought elsewhere than in the changed wage-rental ratio. The most
likely explanation is that since this industry is mainly import-competing, the
reduction in the price of foreign exchange makes imports cheaper and the
domestic industry is forced to contract. Inspection of the computational results
confirms that imports rise significantly. This could not be the only cause,
however, since the exchange rate rises in the case of Gold (7) expansion and
yet 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 the
need 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 affected
mainly by the lower wage-rental ratio in conjunction with the higher price of
intermediate inputs which are also capital-intensive. It is strongly reduced by
all mining industry expansions.
iv Smelting and Refining (26): This industry is also strongly reduced by all
expansions, and for much the same reasons as above. One ought to mention
here the fact that the aluminum smelting and refining component is likely to
be beneficially affected due to the lower price of imported raw material.
Therefore, the rest of the smelting and refining industry may be even much
more adversely affected than these figures suggest.
v Agriculture (I): The output of agriculture falls by at least $1/2 million in all
expansions 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 detrimental
to 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 all
expansions. 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 industries
fall 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 their
inputs are increased due to their high capital intensity, and since they are
traded the reduced price of foreign exchange presumably has some adverse effect.
Finally, there are some industries which are significantly reduced by a few
of the mining expansions. These include Other Transport Equipment (33), PUlp
and 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 by
high 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 exchange
rate have already been mentioned above. The computations indicate that the
wage-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 somewhat
puzzling. The backward linkages to the gold mining industry must cause rela
tively more labour-intensive industries to expand to offset the capital intensity
of the Gold (7) industry. Also, from table 12, we see that the Gold (7) industry
is much less capital-intensive than the rest of the mining sector.
The change in the price of foreign exchange exhibits a similar pattern. It
falls in each case except that of Gold (7). The initial rise in exports will tend to
depress the price of foreign exchange for obvious reasons. In addition, if the

59

wage-rental ratio falls as a result of the mining expansion, this will discriminate
against capital-intensive industries making their prices higher. To the extent
that import-competing industries tend to be relatively labour-intensive, imports
would fall and the exchange rate would fall further. In the case of Gold (7), the
opposite seems to have occurred. The wage-rental ratio rose, discriminating
against import-competing industries and causing a rise in imports. The rise in
imports more than offset the initial export increase, causing the price of foreign
exchange 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), Other
Non-Metals (13), and Quarries and Sandpits( 14)] and falls in the other six [Base
Metals (4), Uranium (5), Gold (7), Coal (8), Cement (36) and Lime (37)].
This would indicate that, given the existing set of distortions, the economy
would be better off if the former six expanded incrementally and the latter six
contracted. It is very difficult to pinpoint the reasons for this result. Welfare may
rise if resources are shifted into industries which tend to be discriminated against
by the tax system 5 or if resources are pushed into industries with relatively high
wage rates. We cannot say a priori which of these influences is strongest in any
of the above cases.

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Expanding Mineral Processing Industries

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The impact of expanding the Canadian minerals processing industries is obtained

much 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 before
by considering separately those industries which benefit and then those whose
output is reduced.

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As in the mining expansion experiments, an expansion of the processing industries tends to benefit industries directly or indirectly linked on the input side to
the processing industries. It is simplest to consider each processing industry in
turn and the increases in output it induces via its backward linkages.
i Iron and Steel (25): This industry causes output to expand substantially in
Iron Mines (6), Coal (8), and Utilities (SO), all of which are sizeable inputs into
Iron 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 by
the iron and steel industry.
ij Smelting and Refining (26): As would be expected a large increase in Base
Metals (4) is induced via an obvious backward linkage. Minor increases are

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

60

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INDUSTRIES WHOSE OUTPUTS EXPAND

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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 are
directly or indirectly inputs into Smelting and Refining.
iii Copper and Alloy Rolling (28): Inputs increase here substantially in Base
Metals (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 or
indirect inputs into Copper and Alloy Rolling. Other inputs less significantly
increased 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 Rolling
and Extruding (27), Truck Transport (46), Other Transport and Storage (48),
and Utilities (50). These increases are all to be expected due to the direct or
indirect linkages.
v Metal Fabricating (30): This industry strongly increases only Iron and Steel
(25), and increases by minor amounts Iron Mines (4), Aluminum Rolling and
Extruding (27), and Metal Casting and Extruding n.e.s. (29). This, of course, is
a higher stage of processing than the previous ones listed so is expected to have
a strong backward linkage.
vi Other Non-Metallic Mineral Product (38): Industries whose outputs increase
substantially 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 outputs
in 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 mining
industries, there are increases in other industries which are not so easily explained by direct linkages. These include especially Construction (43) which
benefits 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 that
these industries are labour-intensive and benefit from the reduced wage-rental
ratio. In addition, another labour-intensive service industry benefiting from the
expansion of some processing industries is Wholesale and Retail Trade (51).
Notice, finally, that in general the industries benefiting from the expansion
of both the mining and processing industries do not include other manufacturing
industries. They are mainly primary and service industries, as well as utilities and
construction.

62

INDUSTRIES WIIOSF UU I'I'UTS CuNTRACT

The pattern of industries advcrsely affected by expansion of processing industries

is remarkably similar to those affected by the mining industries and for much the
same reasons. We need therefore provide only a cursory summary of them here.
Those most strongly reduced in most cases continue to beLeather, Textiles, and
Clothing (20), Machinery (31), and Motor Vehicles (32); as before this is due to
capital-intensity and exchange rate effects. Metal Fabricating (30) is next most
strongly affected because of its capital intensity and the capital intensity of its
inputs. 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 using
capital-intensive inputs that are discriminated against most strongly. These are
the industries which would have to contract if an expansion in processing of
minerals 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 rate
are similar to those obtained when the mining industries expand. The wage-rental
ratio in the economy is reduced when each of the processing industries is expanded. This reflects the capital-intensi ve nature of the processing industries and
of the industries which are related to the processing industries by backward
linkages. The price offoreign exchange also falls in every case. This is due to the
combined effect of the initial exogenous export increase and the depressed
wage-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 every
case except that of Smelting and Reflning (26) indicating that society would
benefit from an expansion of these processing industries. Of course, we have no
way of knowing to what extent the reduced welfare from increasing smelting and
refining is due to aluminum smelting and refining as opposed to the smelting and
refining 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 in
these 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 also
occur through increases in the available supplies of these primary resources. To
assess the impact of such increases we have computed the general equilibrium
changes occurring from expanding the available supplies of labour and capital
separately. The results thus indicate how resources would be allocated if the
existing technology, demand conditions, world supply, and demand functions
were 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 scarce
compared to labour, thus causing the wage-rental ratio to rise. Capital-intensive
industries would be favoured as would those which use as inputs products of
other capital-intensive industries. With higher incomes the demand for imports
would rise, thus tending to cause the price of foreign exchange to rise. The
price of foreign exchange could also be influenced by the change in relative
prices 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 briefly
consider the workings of these influences by discussing the impact of adding to
the 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 $1

billion (about 7.5 percent of the original capital stock). As would be expected
the 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 the
increase in capital.
The price of foreign exchange rises by 4.5 percent, probably reflecting the
two influences mentioned above. Incomes rise due to the increase in capital resources and this induces an increase in imports. But, in addition, the rise in
wage-rental ratio discriminates against labour-intensive industries many of
which are engaged in producing import-substitutes (such as textiles and food
products). Another way to look at the rise in the price of foreign exchange is a
spreading to the rest of the world of some of the advantages of a growth in real
output in Canada. This transmission mechnism is well-known in the theory of
international trade and is explored in depth by Johnson. 6
Even though the supply of capital increases and labour stays the same so
that 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 rela6. 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 a
strongly detrimental effect on the industry, The other industries whose outputs
fall include Other Transport Equipment (1,56 percent), Leather, Textiles, and
Clothing (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 beneficial 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 of
foreign exchange. Three other industries closely related to Petroleum and Gas
Wells benefit substantially from the rise in capital. They include Pipeline
Transport (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 than
this latter industry, the mining industries do not fare particularly well even
though 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 and
Feed. The mere size of these industries militates in favour of large changes in
their 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 true
not only of changes in output but also of changes in capital use since the latter
closely parallels the former.
THE EFFECTS OF INCREASING THE LABOUR SUPPLY

The labour supply was increased exogenously by 100,000, or about 2 percent

of the original labour force. The results obtained from this experiment were in
many ways the mirror image or opposite of those attained when capital increased. The wage-rental ratio of course fell, due to the increased availability of
labour. As with the previous case, the magnitude of the fall was the same in
percentage 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 (2.08
percent), Other Non-Metal Mines (1.86 percent), Pipeline Transport (1.02 percent), Base Metals (0.23 percent), Asbestos (0.20 percent), and Gypsum (0.09
percent). In absolute terms only the decrease in Petroleum and Gas Wells appears significant ($23.4 million). This is just the opposite of what happens
when capital is augmented. Here, Petroleum and Gas Wells are hurt by the
combination 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 Gas
Wells.
The industry which rises the most is Coal (nearly 16 percent), once again
the opposite of the previous case. This is apparently caused by the fall in the
wage-rental ratio as the data show the price of coal output to fall relative to all
other industries. Other industries to benefit significantly in percentage terms
from the rise in labour supply are all manufacturing industries - Machinery
(3.10 percent), Leather, Textiles, and Clothing (2.77 percent), Miscellaneous
Manufacturing (2.73 percent), Other Transport Equipment (2.70 percent),
Electrical Appliances (2.66 percent), and Motor Vehicles (2.65 percent). But
none of these is significantly greater than the general rise in overall production
in the economy due to the additional factor availability.
The absolute increases in industry outputs are much larger for some of the
larger 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 are
in 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 to
parallel increased outputs.
SUMMARY OF EFFECTS ON MINERALS

Coal and Other Non-Metal Mining are the only mining industries which are
strongly 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 affected
by increases in the supplies of capital and labour, by comparison with other industries.

6. The Effects of the Canadian Tax and Tariff Structure

on 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 many
considerations - income distribution, regional effects, ease of collection, size
of the tax base, etc. As a result tax rates falling on different commodities or on
different 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 differ
over different industries, the allocation of resources to industries will be distorted as compared with what the allocation would be if t~ rates were thuame
i[Ulll .nEiustries
shall refer to the latter as a neutral tax system.
In this study, we have included three broad classes of such distortionstariffs, commodity taxes, and capital taxes. Tariffs are levied by the federal
government on the imports of the products of various industries whether these
are 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 various
industries. A listing of these effects include:
i Those items subject to a tariff will have higher domestic prices. Demand for
these products may be expected to fall in total, but domestic production will
rise since domestic producers will be willing to produce more at higher prices.
Resources are therefore diverted into import-competing industries, especially
those with the highest tariff rates.
ii Industries using imported goods as intermediate inputs will find their costs
have increased due to the increased price of inputs. Resources will therefore
transfer out of industries whose costs have been increased relatively largely by
this route. In addition, through the input-output system a rise in the price of an
imported input will affect not only those industries using it directly but also
those industries using it indirectly (those which use an input whose production
uses the imported input, etc).
iii The tariff, by substituting domestic production for imports and reducing
the overall demand for importable goods, will generally cause the price of

We

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

66

67

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

f~
I

All of the above effects occur simultaneously and thus may cancel or augment one another. Our computations tell us the overall impact of the tariff
structure when all the effects are taken into consideration. The computational
procedure whose results are reported below is to remove the tariff distortions altogether, compute a new general equilibrium system and compare it with the
control solution. It ought to be apparent from the above that knowledge of the
tariff 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 federal
and provincial governments on sales of commodities, except for the provincial
sales taxes for which data were not available. In any case, the latter may be
considered to be fairly non-distorting because the rates do not differ much over
various industries. The federal commodity taxes are the manufacturing sales tax
and excise taxes on tobacco and alcohol. Provincial commodity taxes include
excise 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 same
mechanisms as above except that instead of falling upon imports, they fall upon
all 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 relative
price paid by purchasers will increase more on those transactions bearing a
higher 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 are
adverse effects on the outputs of industries which purchase inputs which are
subject to a high commodity tax rate, much as in the tariff case as outlined
above. Furthermore, the overall effect of the commodity tax system on the
wage-rental ratio and on the exchange rate will indicate whether the commodity
tax system as a whole tends to favour labour or capital on the one hand and
import-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 provincial
mining and logging taxes. They drive a wedge between the net and the gross
returns to capital. Since we assume that in a competitive economy the net return
to capital is the same in all industries, 2 the capital tax makes the required gross
return on capital higher for those industries with higher tax rates. Those with
such 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 industries
and into others. In addition, industries which purchase inputs from industries
with higher capita] tax rates will find the price of their inputs increased more
and 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 we
can tell from the overall impact of the capita] taxes which industries are
favoured and discriminated against and which factor (labour or capital) is
favoured 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 sales
taxes, and estate duties. The data on how these taxes vary over industries is not
available. ]n any case, it seems likely that they are all relatively non-distorting
compared 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 tax
measures was estimated. A summary of the more important results obtained is
shown in table 10. This table shows the effects (as measured by the absolute
and percentage changes in outputs in the mining and processing industries, the
wage 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 apparent
from table 10.
Distortions due to Tariffs
Examination of the first column in table 10 indicates that the elimination of
tariff distortions causes an increase in total output in all mining industries. In
other words, the existing tariff structure discriminates against the mining indus2. We are forced to ignore two important sources of differences in the net rate of return to capital
in this study due to a lack of data. First, elements of monopoly tend to increase the rate of
return to capital above that in competitive industries. Second, industries with greater risk
factors will require larger rates of return to the extent that risk-pooling is not possible through
conglomeration or diversification of financial portfolios.
3. The amount by which higher capital costs will cause higher prices depends upon how important
capital is as an input; that is. how capital-intensive is the industry in question.

69

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$86,762,000. There are several reasons why this bias occurs. The most obvious
one is that the imposition of tariffs causes the Canadian dollar to be worth more
than it otherwise would (the price of foreign exchange is lower). The purpose
of the tariff is to protect import competing industries, but at the same time it
will 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 due
to the tariff increases the price of exports to foreigners, thus reducing demand.
There may be other less direct ways in which the tariff structure affects
mining production. From table lOwe see that the removal of tariffs causes the
wage-rental ratio to fall indicating that the tariff structure favours labourintensive industries relative to capital-intensive ones. Mining industries tend to
be the latter. Also, the mining industries may be purchasers of intermediate inputs which are subject to tariff protection such as manufactured products. This
increases 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 would
change if the tariff structure were not in existence. First stage processing,
Smelting and Refining, is heavily discriminated against by the tariff. Its total
output would rise by $271 .6 million (13.29 percent) if the tariffs were removed. Unfortunately, this industry includes aluminum smelting and refining
which does not process minerals obtained from Canadian mining industries and
we have no way of knowing the extent to which the above result is due to the
processing of aluminum as opposed to domestically produced minerals. Since
the inputs into aluminum smelting and refining are imported, the presence of
the tariff structure would assist the industry by making imports cheaper via a
lower price of foreign exchange (assuming that the imports of bauxite themselves were not subjected to a tari ff). Therefore, one would expect a priori that
the tariff structure would favour aluminum smelting and refining and, if so, this
would mean that the bias against smelting and refining of the minerals procured
from Canadian sources would be even greater than indicated. The other processing industries hampered by the tariff are Iron and Steel and Metal Casting and
Extruding n.e.s. These, however, appear to be only mildly discriminated
against and the reason is by no means obvious .
On the other hand, Metal Fabricating appears to be heavily favoured by
the tariff structure. This may arise because the outputs of this industry are used
to a great extent as inputs into industries which are favoured by the tariff structure such as certain manufacturing industries. Copper and Alloy Rolling is also
slightly favoured perhaps for much the same reason. The effect on the other

71

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, Electrical
Appliances, Other Electrical Products, and Miscellaneous Manufacturing.
These are all industries which are provided with strong tariff protection. So
strong is the protection in the case of Alcohol that the removal of the tariff
forces the industry out of business altogether. On the other hand there are some
manufacturing 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 of
the auto pact of 1965 with the USA. We find that the removal of the tariff
causes automobile production to rise by 24 percent, a surprisingly large figure.
Finally, Petroleum and Gas Wells tend to be moderately discriminated against
by the tariff structure (8.7 percent). Overall, the tariff structure tends to discriminate against primary industries and some manufacturing industries, in
favour of other manufacturing industries, but not to have a strong bias either
towards or against the service industries.
The final significant result to be discussed is the effect on the welfare
index of removing tariffs. The index falls by .75 percent indicating that the
tariff increases welfare slightly rather than decreasing it. This is a rather surprising result given the usual economic arguments in favour of free trade and
against 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 theory
of second best that the removal of some distortions in an economy with other
distortions need not improve economic efficiency or welfare. The tariffs and
taxes may provide offsetting distorting effects on resource allocation so that
removing one may cause resource allocation to go further away from the optimum.
Second, since we are concerned with the welfare of Canadians only and
not that of the rest of the world, it is possible that imposing tariffs can make the
former better off at the expense of the latter. This is known as the optimal tariff
argument in the theory of international trade. 4 The idea is that imposing a tariff
and reducing Canadian demand for imports would induce foreign sellers to re4. See R.E. Caves and R. W. Jones, World Trade and Payments (Boston: Little, Brown and
Company, 1973).

72

duce the price of imports, thus improving Canada's terms of trade. Canada
would be exploiting whatever monopoly power it had in world markets.
Finally, the rise in welfare from imposing the tariff may in part reflect a
shift 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 from
these results, the commodity tax structure has a considerably different effect on
resource allocation than does the tariff structure.
Consider first the twelve mining industries. The commodity tax structure
slightly 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 percent
when the taxes are removed (1.57 percent and 1.08 percent respectively). The
mining industries favoured most are Uranium, Salt, and Other Non-Metal
Mines (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 less
than 2 percent. Overall, one would have to conclude that the commodity tax
structure has little effect on the output of mining industries relative to the rest of
the economy.
A similar result holds for the processing industries. Three are slightly
favoured and three are slightly discriminated against by commodity taxes.
However, only one has an output change of over I percent; Other Non-Metallic
Mineral 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 nor
against processing of minerals in Canada.
The commodity tax structure does have considerable impact on resource
allocation outside the mining and mineral processing sectors. Our computations
indicated that commodity taxes strongly discriminated against the following industries: Petroleum and Gas Wells, Alcoholic Beverages, Tobacco, and Other
Petroleum Products. These are to be expected because of the extremely large
specific excise taxes levied on products of these industries. In addition, the tax
structure discriminated mildly against Motor Vehicles and Pipeline Transport.
Both of these may be explained by the induced effects of the excise tax on
gasoline. Those industries favoured include all the service industries and, to a
lesser 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

capital-intensive ones. Labour becomes more abundant when the tax is removed, reflecting a decline in outputs of more labour-intensive industries (such
as 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 the
tariff 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 rise
by 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 commodity
taxes. There are tariff and commodity tax distortions and also differential wage
rates over industries. Therefore, not too much significance may be attached to
this deadweight loss measure.
Distortions due to Capital Taxes
From table 10 we see the effects of eliminating capital tax distortions. First of
all, observe from table II that the capital tax rates in mining industries tend to
be relatively low compared with that of the manufacturing industries, but
sl 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 to
uncover. Along with Petroleum and Gas Wells, these two industries had the
lowest capital tax rates of all industries in 1966.
The tendency of the capital tax to discriminate against all other mining in5. 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 mining
industries. But, even with the mining taxes included, capital tax rates are still lower than those
in 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 the
taxation structure have taken place at both federal and provincial levels, and the results of the
analysis would clearly be modified as a result. Although the revisions cannot be examined in
detail 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 than
the national average. Second, they are relatively capital-intensive so that the
price of capital figures strongly in the price of outputs of these industries. Any
factor inducing a rise in returns on capital has a fairly large influence on price
and thus on demand. Furthermore, mining industries purchase significant inputs
from industries which are heavily taxed and are used as inputs into heavily
taxed 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 industries
is small except for Other Non-Metal Mines (18.36 percent). Gypsum and Salt
Mines are slightly affected (3.26 percent and 4.42 percent), and Base Metal and
Asbestos Mines are less so (2 percent and 2.3 percent).
On the other hand, the mineral processing industries are all discriminated
against moderately strongly, especially later stage processing. The least affected is Smelting and Re.fining, the first processing stage, whose output rises 3
percent when the tax distortion is removed. However, this effect may be due
mainly to the inclusion of aluminum smelting and refining. Raw material inputs
are imported into Canada and therefore their price depends upon the exchange
rate. 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 industries
such as aluminum smelting and refining and this may account for at least part
of the discrimination against Smelting and Refining. The reasons why other
processing 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 13.6
percent indicating a very strong bias against export and import-competing industries. This indicates that, like the commodity tax structure, the capital tax
appears 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, and
Finance, Insurance, and Real Estate. Most service industries arc favoured as is

75

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

, 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 (by
15.5 percent, 12.1 percent, and 11.4 percent respectively). In these cases, it is
due mainly to the detrimental effects of both tariffs and capital taxes. The remaining two industries, Copper and Alloy Rolling and Other Non-Metallic
Mineral Products are affected only to a minor extent. We have already discussed 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 Rolling
and Extruding, Machinery, Motor Vehicles, Other Transport Equipment. Petroleum Products, Coal Products, Chemicals, Water Transport, and Pipeline
Transport. Most of these industries are in the manufacturing sector, and many
are linked to mining industries (forward or backward). Agriculture, Forestry,
and Fishing are discriminated against to a lesser extent. Broadly speaking, the
tax/tariff distortions tend to discriminate against primary industries and most
manufacturing 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 Electrical
Products, Owner-Occupied Housing, and Finance, Insurance, and Real Estate.
In general all service industries, Communications, Utilities, COllstruction, and
some manufacturing industries are favoured by the distortions. The effect on
manufacturing is mainly due to tariff protection.
The wage-rental ratio falls by 15 percent when the tax/tariff distortions are
eliminated. This implies that overall taxes and tariffs tend to favour labourintensive industries relative to capital-intensive ones. This is not surprising in
view 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 in
the exchange rate by 9.45 percent w hen all taxes and tariffs are removed. Th is
overall appreciation of the Canadian currency is of some interest for policy
analysis, for it shows that the commodity and corporate tax structures more
than offset the protective influence of the tariff structure, especially on many
manufacturing 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 foreigners
via improved Canadian terms of trade (the 'optimal tariff' argument). Also, the
wage 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

76

77

AgriCIIlture. To the extent that the tarin I~ ~UI posed to foster manufacturing industries, this again illustrates how the corporate tax is working at cross
purposes.
The two other pieces of information obtained from table 10 are the effect
on the wage-rental ratio and on the welfare index. The wage-rental ratio falls by
12.5 percent indicating, as expected, that the capital tax works strongly in
favour of labour-intensive industries and against capital-intensive ones. In fact,
labour's share of GNP before and after elimination of the capital tax stays
steady at 46 percent indicating that capital bears almost all of the burden of the
tax. 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 of
other tax/tariff distortions and the labour market imperfections. In any case, the
magnitude of this welfare change is fairly small, indicating that the size of
deadweight 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 the
three types of tax/tariff distortions. To obtain an idea of how the entire
tax/tariff structure affects resource allocation and particularly the mining industry we have computed a general equilibrium solution with all commodity and
capital tax and tariff distortions removed. The results as they affect mining and
processing are presented in the final columns of table 10.
The interesting finding to emerge from these results is that the tax/tariff
structure discriminates against all mining industries, some by substantial
amounts. Coal Mines, for example, rises by 140 percent when the distortions
are removed, mostly due to the detrimental effect of the tariff. Other Non-Metal
Mines increase by 47 percent when the distortions are removed. Other significantly affected mining industries include Base Metals (16 percent), Gypsum (15
percent), Iron (15 percent), Quarries and Sandpits (II percent), and Asbestos
(II percent). Of the remainder, only Cement is affected insignificantly. The
others are increased by about 5 percent or more. Although the exact amounts of
change are of course subject to the exogenous parameters read into the model, our
sensitivity analyses have indicated that results obtained are of the same order of
magnitude as those given above. Therefore, it appears that the mining industry
is fairly strongly discouraged by the set of taxes and tariffs levied by federal
and 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

F(lhricatill~, wh()~

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" Ihe
distortions 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

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, open
economy with fixed factor supplies and some fixed distortions (taxes, tariffs,
wage rate differences over industries).
Notation

7. See. for example. A.C. Harberger. 'Taxation, Resource Allocation and Welfare' , in National
Bureau of Economic Research and the Brookings Institution, The Role of DireCT and Indirect
Taxes 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, 'Efficiency
Effects of Taxes on Income from Capital'. for the deadweight loss of the U.S. corporation
income tax.

Unsubscripted variables are vectors or matrices as the case may be; a prime
denotes a transpose; all unprimed vectors are column vectors; a dot between
two matrices refers to the operation of multiplying each element of one by the
corresponding element of the other; a circumflex represents a diagonal matrix.
For all the variables listed below, the corresponding vector or matrix uses the
same notation with the subscript(s) deleted. Variables are listed in the order in
which they appear.
i,j
= subscripts used to denote industries (i ,j = I , ... ,56)
Xi
= total output in i
= labour used in i
Li
Ki
= capital used in i
Xli
= intermed iate input flows from j into i
AJi
= physical input-output coefficient from j to i
Pi
= producer price of i' s output
tf
= final demand commodity tax rate on i (ad valorem)
Qi
= domestic final demand for i
E;
= proportion of income spent on Qi
Y
= total income from all sources
M;
= quantity of imports of i
tf"
= rate of tariff on M;
S
= exchange rate (price of foreign exchange)
IJ.-i
= world elasticity of supply of M i
Ei
= quantity of exports of i
lJi
= world elasticity of demand for E i
EP, MP = shift parameters in world export and import functions
ti]
= commodity tax rate of Xi] (ad valorem)

78

79

Xi

{3j

Aj
7Tj
W

gi
'Yji

U
B
T

Import Supply and Export Demand Functions

M i = M? (Pi( I +t!")/s)"i

= 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 L i in Cobb-Douglas production functions
= exponent on K j 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

(3)

(4)

E i = EP(Pi/ s) '1i

where 0

:S;

J-ti

<

00, -00

<

'Y/i

:S;

Pricing Relations
P = ~ Aji (I +t;;) pj + Wi Qi +

(5)

r( I +tr) k; + Y;Pi

These are 56 equations. They may be solved for the Pi in terms of all other
variables. The solution in matrix notation is:
P = [I-(A'(I +t' - \,]-1 (w'

+ r(1 +tk)'k)

On the right hand s ide of (6) all items are parameters except w,

(6)
Q ,

1', and k.

Market Clearingfor OutpllfS

Xi = ~ Aij X j
J

+ Qi +

E; - M;

(7)

These 56 equations may be solved for the Xi in terms of all other variables. The
solution is:
X = [I-A]-l (Q+E-M)

The Fixed Coefficient Version

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

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

Market Clearingfor Labour

L=~QiXi= Q'X

(8)

(9)

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

Production Functions
( I)

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

Market Clearing/or Foreign Exchange

~PIE, - ~Pi( I -It') M, = - C

(10)

properties of fi:
i) fi(ALj, AK i) = Afj(Lj, K i)
ii) afi/aLj, 8fi/8K i > 0
2

iii) 8 fi/8L j , 8 fi/K i

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

<0

(I inear homogeneous)

(positive marginal products)

(diminishing marginal products)
(complementarity of L i and KJ

(Below specific functional forms are given to fi).

Demand Functions
Pie 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.

80

(2)

The above system of equations describes the economy with which we are
deal ing. Given the functional forms of ( I ), (2). (3), and (4) and given the
exogenous data (A ij, parameters of fi, Ei, tf, tim, tf, tij, MP, EP, J-tj, 'Y/i, V i) the
model may be solved for the endogenous variables (Wj, Xj, Lj, Kj, Xji, Pi, Qi,
Y, M i, E i, Q i, k i , and 1'). Analytically, the system is reduced to a single
equation (market clearing for labour) in terms of a single variable (the wage
rate). This reduction is explained now.
From the properties of the production functions f"i, the unit factor demands
Q i and k i may be solved as a function of the wage-rental ratio under the
assumptions of profit-max imizing and competitive behaviour. For example,
consider the Cobb-Douglas technology:
(II )

81

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 market
clearing conditions for Xj, (8), and demand functions for Qi, (2), into (17)
gives:

where (Xi + f3i = I. Competitive firms maximize profits subject to given prices
where 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:

a-X

Pi~=Wj

( 12)

Y = wL + rK + (tm.p)' M + [(Yp)'

(3 x

Pi ~= r( 1+1/')

+ p' (lA) + (tkk)']

([I-A]-I(E-M) + C + ((tf. p )' + [(Yp)' + p'(tA)

( 13)

+ (tkk)'] [I-A]-I} Y E/p(1 +t f)

-~

Divide (12) by (13), solve for K i in terms of L i and substitute in (II) to yield:
Q.=L/X=A-1{
1

a;r(l+tn}~;
{3i
W

(14)

Y _

A similar expression may be derived for k j. More generally, any linear homogeneous production function will give unit factor requirements as a function of
the 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 Pi
be functions of the wage-rental ratios by (6).
Next, we derive an explicit expression for total expenditures. Income for
expenditures is derived from several sources - payments to labour and capital,
tariff revenues, tax revenues, other value-added, and net capital inflows. Total
payments to labour and capital are lWiLi and lrK j We assume that the labour
markets 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 is
constant for all i and j. We can define an economy-wide weighted average
wage rate w such that lWiLj = wL. Each industry wage rate will be linearly
related to the economy-wide wage rate, Wi = giW, where gi is a constant. Total
payments to labour will then be denoted by wL.
The expression for total expenditure is then:
Y = wL + rK + (tm.p)' M + (Yp)' X + p' (tA) X

+ (If. p )' Q + (tkk)' X + C

( 17)

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

Xi

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

The unit labour demand is:

Q; =

82

Ail [8;

Solving for Y yields:

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

wL+rK+(tmp)'M+[(Yp)'+p'(tA)+(tkk)'] [I-A]-I(E-M)+C
1-[(t'p)'+{(Yp)'+p'(tA)+(tkk)'}[I-A] lE/p(I+t')

18)
(

Careful inspection of equation (I 8) will show that it is a function of w, r, E i and

Mi. All other variables on the right hand side are either exogenous parameters
or functions of these variables. Also, E j and M i are functions of w, r, and the
exchange rate s by (3) and (4).
To solve for the exchange rate s as a function of wand r we use the balance
of payments constraint (10). Substituting (3) and (4) in (10) gives:
( 19)

For any given values of wand r, Pi are determined and (19) becomes a nonIinear equation in the exchange rates. This equation is solved iteratively on a
computer so that we may treat s as a function of wand r alone in our analytical
discussion. 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:
(20)

Since Q , Y, p, E, and M are all functions of wand r, equation (20) is one

equation in the two unknowns wand r. Equation (20) can therefore be solved
for w in terms of r. Fortunately, that is all that is required. It is a well-known
property of general equilibrium systems that they can only be solved for relative prices, the absolute price level being indeterminate. We can treat as our
monetary unit of account, or numeraire, the rental on capital and arbitrarily set
it equal to unity. Then (20) becomes a single equation in a single unknown w
which can be solved iteratively on a computer.
Having obtained the equilibrium solution for w, it is a simple matter to
work backwards and obtain the general equilibrium values for all other endogenous variables (Xj, Qj, Li> K i, E i, M i, Pi> Xu, S, Y). A general equilibrium
solution may be obtained for any set of exogeneous parameters read into the
system (A, t, t f , t m , t k , E, j.t, Y/, V).

83

The Variable Coefficient Version

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

The above system was solved for the case in which intermediate inputs were
used 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:

The Welfare Change Measure

(21 )

In the text of chapter 3, it was stated that the proportionate change in welfare is
measured as a weighted average of the proportionate changes in final demands:
D.U
U

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 all
intermediate input prices. Proceeding as before with profit maximization, unit
factor demands are derived to be:
Q

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

(22)
(23)

Prices, as before, are the sum of payments to primary and intermediate

inputs. Using (5), the pricing equations reduce to:
+ r(l+tr)k i
(I - ~Yji) ( I - Y I)

WIQ i

PI =

EI

D.O;
01

(28)

"This welfare change measure is implied by the demand functions (2). It is

well-known that these demand functions are consistent with a consumer utility
function of the Cobb-Douglas form:
U = Bno~i

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

=k

(29)

That is, maximizing this utility function with respect to a budget constraint will
yield the demand function (2).
The change in utility from a change in final demands is found by first
differentiating the natural logarithm of (29) to give:

(24)

cI(ln U)

= kEi cI(ln 01)

(30)

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

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

(25)

where D i is the square-bracketed expression and is a function of wand r. The

solution to Pi from (25) is obtained by converting the equations to the log-linear
form and solving for log p, or, in vector notation:
log P = [I -a']-'[Iog 0 +

where a is the matrix of Yu,

1 log (I +t) - 1 log 1]

(26)

:y log (I +t) is the vector of elements IYji log

J

(I +tji), and

:y

log.y is the vector of elements fYji log Yji' From (26), prices are
a function of wand r.
The prices thus computed are used in the mode! exactly as in the fixed
coefficient version. Equations (17) through (20) remain exactly as before.
However, now the Au used in (8) are no longer fixed but depend upon input
prices. Since the exponents Yu are also the values of input i as a proportion of
the value of output j in the Cobb-Douglas production technology, we get a
simple expression for Au as follows
Au = Yu p;!p;( I +lu)

84

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 the
control 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 implies

capital market clearing in this model. For simpl icity, we do so in a closed
economy without taxes. The budget constraint of final demands is:
O'p = wL

rK

(32)

Substituting for p from (6),

Q'[I-A']-'(w

+rK) = wL = rK

Note that the rearrangement of (8) gives:

X'[I-A']

(27)

85

= 0'

(33)

Appendix II

Therefore, substituting into (33)

X' (w

+rK) = wK+rK

The Choice and Sources of Data

(34)

From market clearing for labour we know that

X'

~ =

Therefore, from (34),

X'k

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

..The adaptation of the input-output tables to our model and our choice of
exogenous data is the subject of this appendix. As will be discussed below, the
data are chosen in such a way as to make the control general equilibrium
solution exactly replicate the 1966 Canadian economy. That is to say, the
control solution yields the same total outputs, final demands, intermediate
uses, factor payments, and factor allocations as in the actual economy. In order
to obtain this result we have had to choose our parameter values for production,
demand, and world trade functions very carefully. The methods for choosing
them and the sources of the other raw data used are outl ined in the following
sections.
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 which
it was applied. Thus, tariff rates l tf" were obtained by dividing tariff payments
for each industry by the corresponding flow of imports 2 (gross of tariff). Final
demand tax rates, t{, were obtained by dividing tax payments on final demand
by domestic final demands net of the tax for each industry. Exports were not
subject to the final demand tax. Tax rates on intermediate flows, til, were found
by dividing the tax payment on these flows by the corresponding intermediate
flow net of the tax. Tax payments out of corporation income were obtained
from Corporation Financial Statistics /966 published by the Dominion Bureau
of 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 tables
prepared for us by Statistics Canada. These tables are unpublished.
3. As mentioned in chapter 3, tax payments out of corporate income include both corporation
income taxes of the federal government and the provinces and provincial mining and logging
taxes. The capital tax rates we calculate are therefore purely fictitious and do not represent
legal tax rates. They simply give these tax payments as a percentage of gross surplus.

86

87

gross surplus from the input-output tables net of the tax payments. 4 These
capital tax rates are therefore calculated as a proportion of payments to capital
net 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 of
depreciation and also since it is net-of-depreciation rental on capital which is
equalized over industries. Since we lack data on true depreciation by industry
we are forced to assume that true depreciation rates are the same over all
industry groups. 5 Then, competition equalizes the gross-of-depreciation rental
rate on capital as well as the net and it makes no difference whether tax rates are
applied 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 exogenously
given. Labour supply is measured in man-years. The average annual employment by industry was obtained from Structural Analysis Division of Statistics
Canada. 6 Capital would appear to pose grave problems since we have no
available measures of the stock of physical capital. However, by choosing the
rental on capital to be our unit of account or numeraire we are able to overcome
this 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 the
stock of capital services K j . Data on the return to capital net of tax comes from
subtracting capital tax payments from the 'surplus' item in the input-output
tables. The aggregate supplies of labour and capital are then simply the sum of
their uses in each industry. Note that these supplies of labour and capital
include only that used in the private sector. It is assumed that for all the
experiments we are conducting the public sector's demand for labour and
capital 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 relative
service lives of different capital goods. The former method yields unreliable depreciation rates
and 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 private
sector industries. Public sector use of these primary inputs is assumed exogenously fixed and
has no innuence on the various solutions to this model.

88

Table 11

Tax and Tariff Rates, by Industry

Industry
I. Agriculture
Forestry
Fishing and Trapping
Base Metal and Other Metal Mines
Uranium Mines

2.
3.
4.
5.
6.
7.
8.
9.
10.

Iron Mines
Gold Mines
Coal Mines
Petroleum and Gas Wells
Asbestos Mines

II. Gypsum Mines

12. Salt Mines
13. Other Non-Metal Mines
14. Quarries and Sandpits
15. Services Incidental to Mining

16. Food and Feed

17. Alcoholic Beverages
18. Tobacco
19. Rubber
20. Leather, Textiles, and Clothing

Final
Demand
Capital Commodity
Tax Rate Tax Rate

0.0923
0.1154
0.0625
0.1523
0.1523
0.0464
0.2628
0.0500
0.0476
0.2311
0.2311
0.2311
0.2311
0.1738
0.0705

Tariff
Rate

0.0003
0.0004
0.0000
0.0374
0.0001
0.0060
0.0016
0.0015
0.0151
0.0245
-0.0531
0.0005
0.0422
0.0001
0.0052
0.0126
0.2334
1.6095
0.0905
0.0975
0.0629
0.0986
0.0879
0.0029
0.0718

0.0326
0.0002
0.0029
0.0045
0.0427
0.0001
0.0034
0.0229
0.0174
0.0007
0.0040
0.0713
0.0059
0.0078
0.0653
0.0577
0.3238
0.2423
0.1151
0.1097
0.0525
0.1567
0.1028
0.0552
0.0595

21.
22.
23.
24.
25.

Wood
Furniture
Pulp and Paper
Printing and Publishing
Iron and Steel

0.2548
0.3810
0.3399
0.2792
0.2041
0.1478
0.1995
0.2393
0.2700
0.2546

26.
27.
28.
29.
30.

Smelting and Refining

Aluminum Rolling and Extruding
Copper and Alloy Rolling
Metal Casting and Extruding n.e.s.
Metal Fabricating

0.2423
0.2423
0.2423
0.2423
0.2859

0.0479
0.1829
-0.0044
0.1027
0.0901

0.0274
0.0525
0.0794
0.0752
0.1182

31.
32.
33.
34.
35.

Machinery
Motor Vehicles
Other Transport Equipment
Electrical Appliances
Other Electrical Products

0.2460
0.3366
0.2186
0.2329
0.2863

0.0756
0.1072
0.0937
0.0924
0.1144

0.0686
0.0505
0.0559
0.1453
0.1164

89

Table II

(continued)

Industry

Final
Demand
Capital Commodity
Tax Rate Tax Rate

trltrlM\O'<t
0000 [-0 trl-

("I"')OO",,_........-l

Cement
Lime
Other Non-Metallic Mineral Products
Petroleum Refining
Other Petroleum and Coal Products

0.2095
0.1473
0.1473
0.1290
0.2051

0.0321
0.0103
0.0766
0.6240
0.0405

0.0263
0.0732
0.0755
0.0517
0.0250

4 I.
42.
43.
44.
45.

Chemicals
Miscellaneous Manufacturing
Construction
Water Transport
Rajl Transport

0.2959
0.2575
0.1698
0.1536
0.1666

0.0941
0.0942
0.0000
0.0000
0.0007

0.0659
0.1059
0.0000
0.0000
0.0000

46.
47.
48.
49.
50.

Truck Transport
Pipeline Transport
Other Transport and Storage
Communications
Utilities

0.0000
0.0000
0.0000
0.0068
0.0150

0.0000
0.0000
0.0000
0.0615
0.0024

51.
52.
53.
54.
55.

Wholesale and Retail Trade

Owner-Occupied Housing
Finance, Insurance, and Real Estate
Education, Hospitals, and Health
Other Services

0.1098
0.1722
0.1037
0.2309
0.2032
0.2084
0.0000
0.0822
0.0000
0.1116

0.0013
0.0000
0.0000
0.0000
0.0129
0.0000

0.0940
0.0000
0.0000
0.0000
0.0000
0.0000

0.0000

Tariff
Rate

36.
37.
38.
39.
40.

56. Dummy

'<tNOINM
- N trl

..

for industry outputs are characterized by the same sort of demand functions as
all other final demands.
In table 12 we record the labour uses and capital uses by industry and in
the aggregate. In addition, for later reference we include in this table total
payments to labour, average annual wage rates, and other value-added by
industry.

0Ll

.5
..c:

o
-0
C

o:l

Demand Parameters
The only exogenous parameters required for demand functions are the shares of
total expenditure devoted to each industry's output, Ej. These shares are obtained from the input-output tables as follows. All types of final demand by
domestic 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

.....:N~..q:v)

91

~~oOo\o

......

-......:N~-.:iv)"'r-:OO~O
...... ("'0..1

'"
N

Table 12

(continued)

Industry

21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.

Wood
Furniture
Pulp and Paper
Printing and Publishing
Iron and Steel
Smelting and Refining
Aluminum Rolling and Extruding
Copper and Alloy Rolling
Metal Casting and Extruding n.e.s.
Metal Fabricating
Machinery
Motor Vehicles
Other Transport Equipment
Electrical Appliances
Other Electrical Products
Cement
Lime
Other Non-Metallic Mineral Products
Petroleum Refining
Other Petroleum and Coal Products

Labour
Use
(Man- Years)

Wage
Payments
($ Thousand)

Average
Wage
($)

Capital
Use
($ Thousand)

92003
43128
114369
82209
64428
33618
5076
4185
4076
143342
75417
83006
63376
20289
103228
3992
876
47507
10671
572

464121
203257
765734
494429
437994
234456
32833
28206
22919
869672
487050
598194
413522
114526
595963
29699
5147
278365
95427
3500

5045
4713
6695
6014
6798
6974
6468
6740
5623
6067
6458
7207
6525
5645
5773
7440
5876
5859
8943
6119

115277
49399
450456
111967
274247
106793
0
15792
13845
276630
200599
192106
66806
21642
192756
56686
653
144722
67218
3805

Other Value
Added
($ Thousand)

20623
12121
53023
34337
15830
19110
1933
1193
831
28204
13575
24394
7910
4306
13321
3195
154
15372
10720
451

,
'"
f,,;J

Table 12

(concluded)

Industry

41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.

Chemicals
Miscellaneous Manufacturing
Construction
Water Transport
Rail Transport
Truck Transport
Pipeline Transport
Other Transport and Storage
Communications
Utilities
Wholesale and Retail Trade
Owner-Occupied Housing
Finance, Insurance, and Real Estate
Education, Hospitals, and Health
Other Services
Dummy

TOTAL

Labour
Use
(Man- Years)

72963
67800
510997
37290
i 18548
90361
2868
91303
142097
48333
995888
0
262278
49023
486394
0
4750382

Wage
Payments
($ Thousand)

483955
340393
3587146
234592
770723
408866
21536
524766
774354
328534
4282400
0
1651923
211043
1873318
0
25479084

Average
Wage
($)

6633
5021
7020
6291
6501
4525
7509
5748
5449
6797
4300
0
6298
4305
3851
0
5364

Capital
Use
($ Thousand)

318561
117327
533599
77874
291083
179058
189125
253124
479174
715140
1256212
1358834
1704300
34686
594488
0
13411097

Other Value
Added
($ Thousand)

32656
15922
667618
-6204
- 129615
127449
11751
87794
-60897
44780
944821
1566601
1214276
555507
1016299
478149
9325191

\0

.j:>.

Table 13

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

Industry
I. Agriculture
Forestry
Fishing and Trapping
Base Metal and Other Metal Mines
Uranium Mines

2.
3.
4.
5.
6.
7.
8.
9.

Iron Mines
Gold Mines
Coal Mines
Petroleum and Gas Wells
10. Asbestos Mines

11.
12.
13.
14.
15.
16.
17.
18.
19.
20.

Gypsum Mines
Salt Mines
Other Non-Metal Mines
Quarries and Sandpits
Services Incidental to Mining
Food and Feed
Alcoholic Beverages
Tobacco
Rubber
Leather, Textiles, and Clothing

Final
Demand
($ Thousand)

911642
61463
6359
13027
14565
19799
4389
41303
73376
2893
-584
11084
12717
13933
114001
4233253
528286
307824
168282
2135995

Final
Demand
Shares

0.0168
0.0011
0.0001
0.0002
0.0003
0.0004
0.0001
0.0008
0.0014
0.0001
-0.0000
0.0002
0.0002
0.0003
0.0021
0.0789
0.0217
0.0148
0.0034
0.0431

Exports
($ Thousand)

Imports
($ Thousand)

1247993
48425
55665
220201
28191
294529
93023
14494
450517
163101
8817
2597
49182
6172
800
530978
137118
36233
24620
124467

344843
24975
33053
56362
44
57489
762
172329
437049
2664
850
3610
60059
25502
5012
485061
95598
13831
126980
774939

of this column is total final demand or total domestic expenditure as defined by

equation 17, appendix I. The values of Ej are simply the proportions of final
demand 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 imports
which, 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 output

we have limited ourselves to two types - Cobb-Douglas and Constant Elasticity of Substitution (CES). These functions are written:
Cobb-Douglas:

(35)

CS:

(36)

In the Cobb-Douglas case, the exponents ai and f3i are simply the share of
labour and capital in value-added respecti vely. 7 These come directly from the
input-output tables. Note that f3i is the share of capital inclusive of capital tax
payments. The values of the scale parameters Ai are obtained by using observed industry values of labour and capital use, total output values, and the
above-calculated labour and capital shares. The formula for calculating Ai is:
(37)

While we have observed values for L i and K i (see table 12) and cxact valucs
for ai and f3i, we cannot observe Xi in the data available. Rather, we have
output measured in value terms, or PiXi. However, since prices turn out to be
normalized to unity in the control general equilibrium, PiXj = Xi and the
coefficients Ai may be readily calculated.
In the CES case,8 in addition to the scale parameters Aj, we need values for
the 'distribution' parameter 6 i and the 'substitution' parameter Pi. The latter is
related to the elasticity of substitution between L i and K i as follows:
Pi = (I -cri)/cri

(38)

7. Because of the compl ication of 'other value-added' in the input-output tables. these shares are
shares of labour and capital in the total payments to labour and capital. Other value-added is
assumed to bear a constant ratio to the output price.
8. The Constant Elasticity of Substitution production function is well-known in the economics
literature. 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 Economic
Efficiency'. Review oj Economics and Statistics. vol. 43, 1961. pp. 225-51.

96

97

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

(TI

= -

din (w/r)
din (K/L)

Table 14

Tsurumi has estimated elasticities of substitution for some Canadian manufacturing industries. 9 Where no estimates are available, we have used an elasticity
of substitution of unity which corresponds to the Cobb-Douglas case. If time
and resources had permitted, we could have experimented with different values
of <Ti. From the little sensitivity experimentation we performed, it appears as if
the 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 to
researchers. 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 Li Pi

Cobb-Douglas Industry Production Function Parameters

(39)

(l-oi)KtijIIPi

(41)

Once again, the value of output, pjXj, may be used as the physical output Xi
since all Pi = I in the control general equilibrium.
The values of parameters for the Cobb-Douglas case are shown in Table
14. 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 replicate
resource allocation of the actual economy. The use of input-output data ensures
the correct proportions amongst all total outputs, final demands, intermediate
demands, 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 labour
and capital by industry in calculating production function scale parameters and
the use of real world wage rate differentials (gJg j ) as outlined below ensures
the correct proportionate allocation of factors to each industry. And the correct
scale of outputs (and inputs) is ensured by the use of actual industry total
outputs in computing production function scale parameters.
Given that actual resource allocations in the control solution correspond
exactly to the real world, we may demonstrate analytically that all industry
prices will of necessity be unity in the control general equilibrium. The production function parameters calculated as above are really in value terms (PiAj)

Industry
Number

Scale
Parameter

Labour
Parameter

Capital
Parameter

I
2
3
4
5

12.2667
14.7273
19.6917
5.0223
7.1180

0.274867
0.811235
0.699544
0.322484
0.415060

0.725133
0.188765
0.300456
0.677516
0.584940

6
7
8
9
10

13.2628
10.8251
8.5925
3.6197
7.3179

0.507387
0.848220
0.846170
0.150411
0.395561

0.492613
0.151780
0.153830
0.849589
0.604439

11
12
13
14
15

7.1612
8.3124
5.3818
9.7086
15.0839

0.466275
0.485355
0.289958
0.518680
0.758292

0.533725
0.514645
0.710042
0.481320
0.241708

16
17
18
19
20

24.4723
9.5767
18.6626
14.6404
14.3258

0.653337
0.359689
0.468878
0.632284
0.785657

0.346663
0.640311
0.531122
0.367716
0.214343

21
22
23
24
25

16.7550
13.8056
15.8114
13.9778
13.8450

0.778157
0.774280
0.578356
0.776638
0.560049

0.221843
0.225720
0.421644
0.223362
0.439951

26
27
28
29
30

40.0686
35.1389
39.7098
21.0061
16.4702

0.638627
1.000000
0.589788
0.571275
0.709710

0.361373
0.000000
0.410212
0.428725
0.290290

31
32
33
34
35

16.2210
30.3803
17.6273
21.4663
15.7746

0.660858
0.699672
0.835513
0.811045
0.706197

0.339142
0.300328
0.164487
0.188955
0.293803

9. See H. Tsurumi, 'NonlinearTwo-Stage Least Squares Estimation ofCES Production Functions

Appl iedto the Canadian Manufacturing Industries, 1926-39, 1946-67'. Rel'ielV oj Economics
and Srarisrics, vol. 52, no. 2. 1970, pp. 200-207.

98

99

Table 14

Converting (43) to vector notation gives:

(continued)
Scale
Parameter

Labour
Parameter

Capital
Parameter

36
37
38
39
40

6.2531
16.9514
13.6352
62.9187
11.7182

0.302246
0.872965
0.626378
0.557023
0.432847

0.697754
0.127035
0.373622
0.442977
0.567153

41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56

15.9579
13.3303
21.7795
12.0670
9.2675
11.6297
2.2813
10.3442
7.1123
4.3545

0.460340
0.302376
0.148219
0.276904
0.305843

9.6455
2.4986
9.1285
23.3546
10.5104

0.539660
0.697624
0.851781
0.723096
0.694157
0.672936
0.088542
0.652581
0.567638
0.276313
0.738293
0.000000
0.472475
0.858844
0.739229

0.327064
0.911458
0.347419
0.432362
0.723687
0.261707
1.000000
0.527525
0.141156
0.260771

0.0000

0.000000

0.000000

Industry
Number

1= [1-A'-V]-I(W' ~/p + r(1 Hk)k/p)

where I is now the unit vector. Comparing (44) with (42) indicates that all
prices equal un ity. Our normal ization procedure is therefore equivalent to
choosing physical units of all industry outputs so their prices are unity in the
control equilibrium.

...
Production Function Parameters -

Ai = XlII
J

100

xjyt Lr i K?i)-'

(45)

using actual values for all inputs and outputs. Once again we must use the
values of output, PiXj, and the values of intermediate inputs, PjX ji , in (45).
However, it can be demonstrated in the same way as above that all industry
prices turn out to be unity in the control general equilibrium. Therefore
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
and elasticity (l-ti and 7)i). We have no reliable estimates
of the elasticity of demand for exports by industry or the elasticity of supply of
imports. Therefore, we may experiment with different values as time and
computing 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 E i in the control
situation. Since all prices are unity in the control situation and since it may also
be shown that the exchange rate s is unity the values for MP and EP from (3) and
(4) are simply:

En

(42)

where A, the matrix of aij, is gross of commodity tax payments. When the
computed general equilibrium replicates the real world, Wi ~ JPi and
r( 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 Q dPi + r( I+tr)/Pi + Vi

Variable Coefficient Case

The parameters of production functions (21) are relatively straightforward to

obtain. In the Cobb-Douglas form, the exponents )'jj, ai. and f3i are simply the
shares of Xjj, L i, and K i in total output (net of other value-added). They are
therefore the value input-output coefficients for intermediate goods, labour,
and capital calculated as a proportion of value of total output net of other
value-added. The scale parameters Ai are calculated according to:

since they were found by using PiXi instead of X i in (37) and (41). Since these
value 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 of
physical input-output coefficients Aij, the pricing equation (6) actually computed is:
P=[I-A'-V]-'(w' ~ +r(l+tk)'k)

(44)

(46)

EP = Ej
(43)

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

101

(47)

Inter-Industry Wage Rate Differences

In order to have the control solution reproduce the real world, account must be
taken of the fact that average wage rates differ amongst industries. These
differences are assumed to be due to non-pecuniary differences in working
conditions in different industries. Labour itself remains homogeneous and
mobile amongst industries at the given wage rate differentials. The average
annual wage rate in an industry in the control situation is computed to conform
with the observed average labour usage in that industry and the total wage bill,
Wj. Thus,
Wi

= WJL;

= I.....56

(48)

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

where W is the aggregate wage bill for the economy. We assume that the
proportionate 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 such
that:
W;=gjW

I, ... ,56

(50)

where all gi are chosen such that wJWj are as observed and IWiLj = wL for all
general equilibrium allocations.
The values of gi used in computing the control general equilibrium are
obtained from:
gl = (W JL;)/(W /L)

i = I, ... ,56

(51)

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 will
change so that the gi as defined by the control values of W;, W, and L j will not
in general ensure that IWiLj = wL in the shock equilibrium. We have introduced an iterative procedure for amending the gj so as to satisfy this condition
and, in addition, maintain the constancy of wi/Wj (or gj/gj) before and after the
shock. That is, we want to ensure that in the shock solution,

or
(Igi"L;*)/L = I

102

(Ig;L;*)/L

F# I

To correct the gi values we iterate them as follows. First, a new general

equilibrium is computed using the old gj. Next, F is calculated as above. Then
all gi are amended by dividing each one by the calculated F. (This will retain
the constancy of g;/gj') Another general equilibrium is calculated along with a
new F. The procedure is repeated until F comes sufficiently close to unity. At
that point, the gt will satisfy the above properties and this will be the shock
solution.

Input-Output Coefficients
(49)

w = W/L

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

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 input
per dollar of output. In the variable coefficient case the value input-output
coefficients gross of commodity tax payments are exponents ajj in the production function equation 21 , append ix I. The physical input-output coefficients
are variables and are computed according to equation 27 using the price of the
general equilibrium solution. In the computational procedure, since new Pi'S
are calculated for each new w within the iterative procedure, new Au's are
calculated for each w iteration.
In the fixed coefficient version, physical coefficients Au are fixed and
related to the net-of-tax value coefficients by Au = aupJpj where au is the
value of input i used per dollar of output j when com mod ity tax payments have
been eliminated from the input values. To use these value coefficients as if they
were 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 model
are chosen so as to exactly repl icate the actual economy, all industry prices turn
out to be unity. This will13e demonstrated in the next section. With all prices
unity, 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 or
au). These may easily be converted to gross-of-tax value coefficients au using
the 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 for
each industry.

103

0
.I>-

Table 15

Inpllt-Output Coefficients - /966

I

INDUSTRY

0.039389
0.600401
0.000000
0.000004
0.000000
0.000021
0.000142
0.000000
0.00002S
0.000000
0.000000
0.000000
0.000000
0.000000
0.000017
0.32668A
0.032134
0.27484A
0.000021
0.006119
0.002916
0.000111
0.00122S
0.000023
0.00006A
0.000004
O.OOOOOA
0.000007
0.000000
O.OOOOIS
0.000013
0.000004
0.000008
0.000011
0.000018

1
4
"i
A

7
8
9
10
11
12
13
14
IS
lA
17
18
19
1'0
21
'2?

21
24
2"i
26
27
28
29
30
31
32
33
34
35

Table 15

Ul

0.002177
0.094595
0.000187
0.000047
0.000018
0.000054
0.000301
0.000038
0.000012
0.000017
0.000000
0.000000
0.000039
0.000048
0.000189
0.000084
0.000040
0.000023
0.000058
0.000064
0.260933
0.003069
0.131909
0.000038
0.000207
0.000040
0.000073
0.000080
0.000277
0.000080
0.000089
0.00006
0.00009
0.000068
0.000068

0.000000
0.000040
0.028816
0.000000
0.000000
0.000000
0.000000
0.000000
0.000001
0.000012
0.000000
0.000000
0.000000
0.000000
0.000003
0.020187
0.000000
0.000000
0.000000
0.0045S7

0.000028
0.000159
0.000104
0.013080
0.000527
0.000262
0.005166
0.000245
0.001181
0.000807
0.000515
0.000000
0.000603
0.000369
0.000157
0.000010
0.000005
0.000002
0.000012
0.00n021

O~OOOOOO 0~000009

0.000000
0.000000
0.000001
0.000001

O~OOOOOO

0.000000
0.000000
0.000000
0.000001
0.000000
0.000001
0.000001
0.000000
0.000000

0.000010
0.000038
0.000015
0.003871
0.372762
0.000006
0.000010
0.003948
0.000026
0.000157
0.000006
0.000018
0.000088
0.000031

5
0.000001
0.000011
0.000000
0.000001
0.000000
0.000003
0.000000
0.000000
0.000001
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000001
0.000000
0.000001
0.000000
0.000001
0.005946
0.000000
0.000000
0.000000
0.000000
0.000002
0.000000
0.000000
0.000000
0.000000

0.000031
0.000043
0.000021
0.000164
0.000127
0.009294
0.000486
0.000151
0.000279
0.000081
0.000000
0.000042
0.000126
0.000337
0.000084
0.000017
0.000019
0.000035
0.000030
0.000033
0.000018
0.000018
0.000055
0.000059
0.071222
0.000907

O.OOOOOA
0.001608
0.000077
0.000003
0.000000
0.000441'
0.00012A
0.00044S
0.000004
0.000138
0.000358
0.000007
0.000033
0.000020
0.000001
0.030196
0.000000
0.000050
0.000094
0.010950
0.004734

10

0.000359
0.000417
0.000176
0.000341
0.004199
0.003230
0.000670
0.000491
0.001208
0.000122
0.000103
0.001417
0.006172
0.000345
0.000217
0.000464
0.000330
0.000207
0.000900
0.000255
0.000354
0.000296
0.003847
0.000312
0.001462
0.001060
0.000942
0.000401
0.001044
0.000650
0.000610
0.000~55
0.000 4
0.000565
0.000342

0.000004
0.000047
0.000021
0.000015
0.000000
0.000013
0.000008
0.000019
0.000008
0.000093
0.000000
0.000000
0.000019
0.000040
0.000021
0.000002
0.000000
0.000000
0.000000
0.000018
0.000001
0.000000
0.000143
0.000002
0.000005
0.000002
0.000000
0.000000
0.000000
0.000004
0.000026
0.000001
0.000004
0.0000b4
0.0000 2

7
0.000010
0.000006
0.000000
0.000773
0.000382
0.000172
0.004596
0.000057
0.001021
0.000667
0.000412
0.000000
0.000447
0.000193
0.000042
0.000002
0.000000
0.000000
0.000004
0.000003

0.000200
0.000184
0.000010
0.000266
0.007525
0.000064
0.000745
0.010474
0.000004
0.000319
0.000000
0.007585
0.001118
0.006967
0.000014
0.000277
0.001158
0.000086
0.000647
0.000381
0~000002 0.000107
0.000008 0.000319
0.000004 0.005720
0.000004 0.000103
0.000190 0.034442
0.003026 0.006090
o.oooolb 0.000118 0.000000
0.00001 0.0002 3 0.000848
0.000028 0.001044 0.000111
0.000029 0.000019 00.000214
0.000105 0.000018 0.000357
0.000019 0.000804 0.006~47
0.000028 0.000 12 0.00 38
0.000045 0.000009 0.000295
0.000050 0.000180 0.000300

"

(continued)

INDUSTRY
36
37
38
39
40
41
4?
43
44
45
4A
47
48
49
50
51
52
51
54
5<;
56

2
0.000031
0.003286
0.000270
0.000020
0.000051
0.000081
0.000104
0.001316
0.000018
0.000038
0.00058A
0.000003
0.000215
0.000214
0.000014
0.000785
0.000000
0.000014
0.000031
0.000043
0.001528

3
0.000000
0.000000
0.000010
0.000001
0.000000
0.000002
0.000000
0.000014
0.000000
0.000041
0.000003
0.000000
0.000001
0.000004
0.000000
0.000004
0.000000
0.000000
0.000000
0.001472
0.000177

4
0.000050
0.000070
0.002400
0.000008
0.003616
0~000251

0.000009
0.000294
0.000002
0.000136
0.000024
0.000010
0.000037
0.000022
0.000004
0.000060
0.000000
0.000025
0.000035
0.000054
0.000286

5
0.000000
0.000000
0.000002
0.000001
0.000000
0.000001
0.000000
0.000004
0.000000
0.000011
O.OOOOO?
0.000000
0.000000
0.000001
0.000000
0.000002
0.000000
0.000000
0.000000
0.000001
O.OOOOO?

0.000082 0.000006
0.000000 0.000000
0.000627 0.000030
0.000087.0.000002
0.000306 00.000000
0.000070 0.000012
0.000046 0.008473
0.000083 0.000218
0.000022 0.000000
0.000030 0.000006
0.0000?1 0.000005
0.000077 0.000003
0.000032 0.000010
0.000056 0.000004
0.000023 0.000002
0.000129 0.000036
0.000000 0.000000
0.000105 0.000009
0.000029 0.000343
0.000068 0.000012
0.000064 0.000032

10

0.050383
0.072632
0.001923
0.000003
0.078737
0.005761
0.000397
0.000556

0.006240
0.007270
0.002284
0.628181
0.000e66
0.006318
0.000494
0.000170

0.000 0
0.000002
0.000000
0.000000
0.000001
0.019391
0.000052
0.000000
0.000000
0.000706
0.000002
0.000027

0.0001
0.000756
0.000212
0.000639
0.000207
0.001452
0.001144
0.000000
0.000882
0.000442
0.000425
0.000106

0.000006
0.000000
0.007376
0.000002
0.002445
0.000008
0.000091
0.000018
0.000000
0.000044
0.000005
0.000000
0.000004
0.000005
0.000001
0.000011
0.000000
0.000003
0.000005
o.oooo~~
0.0000

0.005b~9 0.00041~

0\

Table 15

(continued)

INDUSTRY
1

C;

f>

0.000000
O.OOOOO?
0.000000
O.OOOOOh
0.000000

0.000156
0.000030
0.009536
0.000005
0.000400
0.000003
0.000042
0.000019
0.000141
0.000012
0.000000
8:888566
0.000008
0.000007
0.000445
0.000025
0.000000
0.000000
0.000039
0.000001
0.000000
0.000153
0.000001
0.000002
0.000246
0.000000
0.000000
0.000000
0.000001
0.000019
0.000001
0.000001
0.000000
0.000000

O.OOOOO~

23
24
2c;
2f>
27
2A
29
30
31
32
33
34
35

Table 15

(continued)

A
9

II

Is

14
JC;
16

17
lA
19
20

71
'2?

12

0.000000
0.000000
0.000005
0.000000
0.006904
8:88888R
O.OOOOOA
0.000007
0.000000
O.OOOOOA
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000001
0.000000
0.000000
0.000000
0.000000
0.000000
0.000013
0.000000
0.000000
O.OOOOOC;
0.000000

10

-..I

II

INDUSTRY
3h
37
3A
39
40
41
4?
41
44
4c;
4f>
47
48
49
50
51
5?
53
54
c;c;
5h

II

0.00 970
0.00 6 000
0.001127
0.000000
0.000000
O.OOOOOn
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
O.OOOOIS

12
0.000008
0.00000
0.000009
0.000069
0.000000
0.002286
0.000006
0.000012
0.000000
0.000384
0.000004
0.000000
0.000191
0.000002
0.000000
0.000004
0.000000
0.000000
0.000000
0.000043
0.000044

13

14

15

16

17

0.005443
0.000034
0.000062
0.002655
0.0003f>4
0;000144
0.000494
0.000208
0.000156
0.000017
0.000000

0.000684
0.000200
0.000073
0.002455
0.000836
0;00002A
0.000954
0.000019
0.000138
0.000151
0.000000

0.000007
0.000208
0.000135
0.023005
0.013323
0.005718
0.154524
0.002151
0.034676
0.022752
0.014632

0.085614
0.004503
0.001276
0.000381
0.000291
0.000444
0.000477
0.000453
0.000147
0.000557
0.000000

0.000061
0.000015
0.000021
0.000015
0.000000
0.000021
0.000017
0.000000
0.000017
0.000006
0.000000

0.000161
0.002401
0.000021
0.000005
0.000012
0.001002
0.000070
0.000004
0.000002
0.002298
0.000017
0.001219
0.003748
0.000000
0.000112
0.000014
0.000267
0.000238
0.000088
0.000041
0.000864
0.000262

0.014824
0.000087
0.000132
0.000003
0.000000
0.000016
0.000043
0.000005
0.000000
0.001015
0.000006
0.003616
0.001045
0.000034
0.000045
0.000332
0.000205
0.000247
0.000054
0.000079
0.000093
0.000043

0.006686
0.001380
O.OOOOOA
0.000003
0.000000
0.000002
0.000017
0.000004
0.000000
0.000002
0.000006
0.000023
0.000009
0.000000
0.000007
0.000007
0.000024
0.000184
0.000005
0.000019
0.000100
0.000010

0.000819
0.000507
0.160223
0.061065
0.002810
0.001297
0.007903
0.001343
0.002121
0.003459
0.000407
0.001124
0.000410
0.001295
0.001085
0.004439
0.000839
0.001085
0.000630
0.000598
0.001136
0.000793

0.000024
0.000024
0.000651
0.01h539
0.000028
0.000058
0.000064
0.000043
0.000726
0.000262
0.000018
0.000036
0.000014
0.000241
0.000042
0.000166
0.000024
0.000050
0.000026
0.000020
0.000034
0.000067

8:88~8~~ 8:R88!8~ R:8~gg~g 8:888~6g 8:8888~S

13
0.000006
0.000000
0.009316
0.000146
0.000255
0.015697
0.000133
0.000100
0.000007
0.000005
0.000003
0.000024
0.000004
0.000016
0.000005
0.000016
0.000000
0.000030
0.000000
0.000021
0.000395

14

15

16

17

18
0.000011
0.000004
0.000010
0.000006
0.000000
0.000008
0.000008
0.000000
0.000002
0.000000
0.000000
8:8888?8
0.000008
0.000007
0.000068
0.000061
0.229145
0.000007
0.000010
0.000016
0.000018
0.000007
0.000005
0.000015
0.000005
0.000017
0.000014
0.000069
0.000009
0.000019
0.000009
0.000009
0.000014
0.000007

18

19

20

0.002059
0.000053
0.000332
0.000073
0.000236
0.000074
0.000075
0.000094
0.000021
0.000058
0.000000

0.003705
0.002226
0.031450
0.000395
0.000109
0.000154
0.002754
0.000226
0.000114
0.014405
0.000206

0.000120
0.000087
0.000178
0.000108
0.000341
0.025549
0.010132
0.000892
0.022717
0.001422
0.001027
0.001234
0.000059
0.000460
0.008227
0.00 747

0.000441
0.000168
0.002716
0.000479
0.001272
0.116360
0.368696
0.001424
0.086006
0.009473
0.005175
0.000311
0.000414
0.000454
0.000223
0.000899
0.001106
0.001186
0.020945
0.004483
0.002377
0.004498

8:888~~ 8:881~~f

0.001~~0

0.010772
0.018557
0.013896
0.010377
0.0 3126

19

0~00~002 0.0000}5 0.000~8~ 0.000006 8.080000 0.00003

0.00 453
0.036618
0.000009
0.042068

0.00?~37

0.000 46
0.00S577
0.000000
0.000207
0.000020
o.oonooo
0.000672
0.000019
0.000000
0.000045
0.000000
0.000001
0.000001
0.000054
0.000002

0.0000
0.000053
0.000007
0.000000
0.000011
0.000002
0.007409
0.000000
0.000184
O.OOOOIA
0.000000
0.000010
0.000018
0.000000
0.00002A
0.000000
O.OOOOOS
0.000006
0.000036
0.000204

0.000 6

0.000000

.0 0000 0.00000

20
0.000604

6 0.005453

0.0014~9 0.000029 0.000006 0.00 959 0.004535

0.0002 4 0.000011 0.000001

0.000713 0.000000 0.000000
0.02~}49 0.001683 0.000009
0.00 28 0.000062 0.000007
0.001427 0.000121 0.000018
0.000466 0.000011 0.000004
0.0014P4 0.00n015 0.000004
0.001130 0.000099 0.000014
0.000024 0.000000 0.000000
0.000536 0.000044 0.000006
0.000128 0.000008 0.000000
0.000146 0.000005 0.000001
0.0017A4 0.000059 0~000027
0.000000 0.000000 0.000000
0.000078 0.000017 0.000000
0.000697 0.00n061 0.000003
0.079645 0.000057 0.000022
0.028360 0.003858 0.000029

0.00 024 0.000060

0.000866 0.000153
0.00~176 0.003842
0.00 933 0.021070
0.004302 0.005779
0.000366 0.002A20
0.001005 0.002287
0.017164 0.000hA7
0.000000 0.000007
0.003971 0.001048
0.000018 0.000503
0.000019 0.000020
0.000787 0~005475
0.000000 0.000000
0.000g~6 0.000075
0.000 4 0.006105
0.000489 0.007654
0.021254 0.006620

Table 15

(continued)

00

INDUSTRY
1

3
4

,
6

7
8
9

10

11
I?
13

t~

16
17
18
19
20
21
27.
23
24
?5
26

27
28
29
30
31

j~

34
35

\0

Table 15

3~

40
41
42
43
44
45
46
47
48
49
50
51
5?

~2

55
56

22

23

24

25

26

0.000877
0.00042R
0.01193?
0.000884
0.000 73
0.000087
0.000100
0.000698
0.000044
0.000161
0.00391h
0458
0.88
O. 8650

0.000065
0.000024
0.000176
0.08 00
0.0 00
0.000018
0.000025
0.000000
0.000007
0.000012
0.000000
4
0888g
O.
0

0.000954 0.000158 0.000157 0.001199

0.000205 0.000046 0.000395 0.000108
0.000923 0.000078 0.000742 0.000213
8.0805~7 0.00808~ 0.0 0639 0.00 251
.0 17 7 0.00 1
0.0 5253 0.00 818
0.000413 0.000146 0.004388 0.000968
0.001549 0.000109 0.016418 0.003818
0.000887 0.000170 0.010360 0.001340
0.000255 0.000102 0.000168 0.000423
0.019536 0.000453 0.000099 0.000273
0.000515 0.000103 0.009789 0.000309
67 0.08 0000 0.000792
0
0.07569~
0.031
0 8..0 8tg 16 0.0
3888 0.001361

0.001475
0.00680A
0.002928
0.000619
0.001866
0.41422,
0.081729
0.031447
0.000259
0.002551
0.000131
0.003134
0.005347
0.001231
0.002979
0.002567
0.00+,80
0.00 04
0.003897
0.001611

0.000126
0.000282
0.000102
0.000 88
0.000258
0.007968
0.030273
0.000808
0.000027
0.000784
0.000017
0.000219

0.031009
0.041700
0.057545
0.012791
0.015593
0.008367
0.024269
0.142876
0. 82,56
O. 02 03
0.001132
0.013058

0.000 5
0.000500
0.000397
0.000995
0.000722
0.007272
0.008623

0.004 6 o.noo 1
0.007983 0.000319
0.002857 0.001166

00

8:888g~~ 8:8888t~ 8:885~'~ 8:8881~~ 8:8g~~~ 8:8883~g

0.001122
0.011057
0.007.677
0.000442
0.000468
0.000180
0.000904
0.002913
0.069196
0.000159
0.000068
0.000241

0.000~35 0.002~5~ 0.00068~

0.00671~ O.OOOII~

0.0024
0.000
0.021346 0.000547
0.007729 0.000208

0.000361
0.000022
0.000009
0.001560
0.000222
0.000993
0.027055
0.000685
0.000031
0.130539
0.009479
0.014706
0.00,869
0.00 087
0.209853
0.088504
0.Og5198
0.0 4615
0.071744
0.025117

0.000092
0.000175
0.000016
0.002493
0.000593
0.000176
0.000451
0.003038
0.000530
0.031357
0.291814
0.526132
0.64 044
0.26 131
0.013075
0.002609

27

28

21

29

0.000000
0.000001
0.000000
0.000004
0.000000
0.000003
0.000000
0.000000
0.000002
0.000000
0.000000
0.0008 00 8
0.000

0.000001
0.000000
0.000000
0.000804
0.000 00
0.000003
0.000008
0.000000
0.000000
0.000000
0.000000
00
8.8
00 888

8:88888g
0.000058
0.000000
0.000000
0.000137
0.000011
0.000564
0.001104
0.003396

8:888888
0.000003
0.000000
0.0000h9
0.0000 9
0.000030
0.000025
0.000163
0.000172

0.0002~6 0.000~02

0.0015 9 0.000 52
0.000877 0.000174
0.019000 0.001329

0.00890~ 0.00800~

0.01493
0.019000
0.004722
0.0029~~ 0.004380
0.0040
0.011644
0.006451 0.013609
0.017898 0.018473

0.00335
0.008279
0.006526
0.0061j7
0.0044 1
0.009631
0.066824

30

0.000018 0.002348
0.000026 0.007135
0.000057 0.009173
0.0083+~ 0.005868
0.00 0
0.002963
0.000056 0.002596
0.000594 0.004395
0.000170 0.005907
0.000022 0.001518
0.000Q17 0.000969
0.000000 0.002267
8.08050~
.0 0 6 0.08~209
0.0 898

8:888b+~ 8:88~686

0.000036
0.000083
0.000009
0.000468
0.000112
0.000104
0.000397
0.000336
0.003987
0.004362
0.007525
0.020694
0.028059
0.041485
0.005572
0.002240

0.016774
0.020284
0.003265
0.010660
0.003870
0.009612
0.062913
0.006662
0.000889
0.017413
0.002992
0.011342

0.0~15i3

0.0 41 0
0.110528
0.098697

0.00454~ 8.84~375

0.00309
5 93
0.003386 0.147514
0.006166 0.031126

"

(continued)

INDUSTRY
36
37

21

22

23

24

25

26

27

28

29

0.000403 0.000013 0.015853 0.000390 0.000025 0.000434 0.000000 0.000000 0.000069

0.001049 0.000000 0.040475 0.000909 0.000350 0.000280 0.000000 0.000000 0.000000
8:38n~gt 8:888b~~ 8:8b~~I9 8:888a7~ 8:886~~ 8:8b~1~2 8:88886~ 8:888hn8 8:8888~~
0.000611 0.000000 0.007894 0.000153 0.000255 0.000051 0.000000 0.000000 0.000051
0.002107 0.000441 0.027151 0.000744 0.002947 0.009312 0.000408 0.000522 0.001407
0.017087. 0.000698 0.030945 0.000829 0.016787 0.017575 0.009255 0.009281 0.003993
0.051780 0.003234 0.008389 0.000160 0.032253 0.000150 0.000949 0.003313 0.001386
0.000147 0.000036 0.000770 0.000245 0.000051 0.000013 0.000800 0.008000 0.088007
0.900097 0.000066 0.000237 0.000046 0.006492 0.000041 0.000 66 0.00 583 0.0 224
0.000118 0.800051 0.000280 0.000145 0.000882 0.000031 0.000000 0.000002 0.000024
0.000007 O. 00000 0.000077 0.000034 0.000003 0.000252 0.000000 0.000000 0.000000
0.00011? 0.000058 0.001712 0.002434 0.000224 0.000068 0.000000 0.000001 0.000012
0.00002A 0.000006 0.000418 0.007613 0.000006 0.000020 0.000000 0.000000 0.000001
0.000014 0.000005 0.000080 0.000395 0.000013 0.000142 0.000000 0.000000 0.000003
0.001714 0.000220 0.011525 0.001595 0.000279 0.000153 0.000019 0.000024 0.000029
0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000
0.008 035 0.008 011 0.08 0116 8.802094 0.000011 0.800038 0.800000 0.0008 00 0.0088 00
0.00 090 0.00 124 0.0 1893 02535 0.00002> o. 00176 O. 00000 0.000
00 0.00 57
0.00265? 0.000355 0.004909 0.000709 0.000060 0.000350 0.000006 0.000000 0.000187
0.000738 0.001142 0.0133~0 0.094470 0.002544 0.000955 0.000155 0.000124 0.000427

30
0.000384
0.001678

8:8b;8l~

0.013242
0.014596
0.033481
0.101984
0.001321
0.006560
0.001404
0.000007
0.000588
0.000119
0.000056
0.003305
0.000000
056
8..00 88 360
0.001278
0.038959

Table 15

(continued)

INDUSTRY

31

32

33

34

0.000667
0.000239
0.002645
0.000967
0.000673
0.000827
0.001515
0.001170
0.000 31
0.000284
0.000927
0.000333
0.000729

0.000299
0.002294
0.070083
0.001881
0.001291
0.009792
0.001833
0.004642
0.001140
0.000488
0.000721
0.000083
0.001302

0.000098
0.000093
0.000171
0.000182
0.000127
0.000128
0.000293
0.000189
0.000033
0.000035

12
13

0.00755S
0.003827
0.027463
0.012091
0.010651
0.011099
0.612039
0.021079
0.0045?1
0.00235A
0.007419
0.000917
0.013044

19
18
19
20
21

0.080818
0.0 1093
0.001017
0.003161
0.001460
0.001013

0.080156
0.0 0628
0.000123
0.001005
0.000191
0.000251

8.00865
.000 40
0.000016
0.000119
0.000107
0.000126

24
25
2n

0.001538
0.006105
0.001846
0.007630

8.080536
.0 0420
0.000190
0.000723
0.000817
0.001098
8:883413
0.000293
0.002145
0.000533
0.001469

0.000120
0.001324
0.000378
0.000779

0.000028
0.000463
0.000125
0.000662

?
3
4
S
A

7
8
9
)0
11

l~

~S

27

~~

30
31

3~

34
3S

35
0.000518
0.000991
0.011460
0.000391
0.000400
0.000483
0.000511
8.000755
.000222
0.OOO?61

0~000103 0.00020~

0.000000 0.000208
0.000165 0.000515

8:8~~r4~ 8:88?~a~ 8:881e6~ 8:g88~~~ 8:888~l6

8:88b~6S

8:88gI~1 8:R886~g

0'800414
O. 00358
0.000316
0.001184
0.000764
0.000784
8:88Sgjb
0.000256
0.002832
0.001316
0.002383

8:8?28lg

36

37

38

39

40

0.000012
0.000082
0.000005
0.000017
0.000000
0.000015
0.000008
0.000080
0.0000 5
0.00004\
0.000000
0.000000
0.000029
8:888869
0.080007
0.0 0005
0.000000
0.000005
0.000003
0.000006

0.000035
0.000000
0.000000
0.000793
0.004926
0.000023
0.002076
0.080000
0.0 0000
0.000023
0.000000
0.001250
0.000097

0.000160
0.000708
0.001395
0.000511
0.000Q36
0.000531
0.000360
0.000113
0.000077
0.000279
0.00247J
0.000083
0.001186

0.034735
0.020897
0.042859
0.004806

8'800044
00056
0.000028
0.000011
0.000029
0.000004

8'804698
32743
0.000065
0.001056
0.001071
0.005294

0.005861
0.003909
0.001082
0.004781
0.002701
0.005646

0.000005
0.000017
0.000005
0.000013
0.000000
0.000021
0.000000
0.000019
0.000001
0.000006
0.000000
0.000000
0.000010
8:88888g
0'800014
O. 00006
0.000000
0.000026
0.000038
0.001085

0.000011
0.000023
0.000005
0.000006

0.000005
0.001279
0.000286
0.000006

0.000110
0.015311
0.004622
0.000802

0.001927
0.010658
0.005797
0.005747

0.000004
0.002008
0.001834
0.000006

0.007~~2

0.024355
0.007141
0.020042
0.003499
0.021864
0.018959
0.018045
0.009690

8:883b~t 8:88b~g? 8:8~ZS~~

8:8888?~ 8:8882a~ 8:88~~I1 8:8?4~~r 8:8888~t

8:8?~6~~ 8:88~~~~ 8:8829a~ 8:88~t~f

8:8888?2 8:8888?2 8:88~~rS 8:88~7~2 8:888?31
0.610119 0.003867 0.002875 0.003135 0.00929S 0.000026 0.000016 0.005626 0.002361 0.000087
0.40314? 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 0.000077
0.005381 0.002200 0.001911 0.006177 0.166692 0.000005 0.000008 0.008807 0.001634 0.000019

,
Table 15

(continued)

INDUSTRY
3n
37

3~

40
41
4?
43
44

45
4A
47
48
49
50
51
5?
53
54
55
56

31

32

33

34

35

36

37

38

39

40

0.000554 0.000239 0.000107 0.000019 0.000189 0.000346 0.000252 0.001007 0.018042 0.000013
0.001118 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

0.000764
00.00002893
'01 72 959
0
79~
00.00006273523

S
0.001364
0.00061S
244A
8 '88 204A
0.00127?
0.001428
0.000000
0.00221?
0.000968
0.000727
0.03978'1

0.000611
0.000701
0.001280
0.004373
00.00 0 761
.00 2 3 84
0.030110
0.000024
0.003979
0.000051
0.000124
0.000257
0.000000
0.000051
0.000242
0.000296
0.031470

0.000306
0.000342
0.000501
0.002437
0.027737
0.011548
0.000205
0.000067
8.014616
.000051
0.000068
0.000355
0.000000
0.000225
0.000245
0.000290
0.003767

8:8888Yr
0.000051
0.000131
0.000914
0.003208
0.000051
0.000073
0.000386
0.000000
0.008 077
0.00 005
0.000011
0.000056
0.000000
0.000006
0.000236
0.000073
0.002141

8:8853~e 8:8Z~6gy 8:88btt~ 8:85E~A~ 8:8b;~~~ 8:888~~~

0.000357
0.000849
0.008612
0.037638
0.000607
0.000501

0.00361~

0.000034
0.001457
0.017926
0.000095
0.000431
0.000000
0.000049
0.000337
0.000363
0.030300

0.000204
0.000027
0.000029
0.003941
0.000000
0.000001
0.000011
0.000007
0.000008
0.000004
0.000011
0.000016
0.000000
0.000004
0.000022
0.000015
0.000024

0.001070
0.000277
0.000021
0.000376
0.000002
0.000001
0.000002
0.000000
0.008 016
0.00 000
0.000000
0.000012
0.000000
0.000000
0.000000
0.000002
0.000004

0.001884
0.010781
0.012143
0.060536
0.000067
0.001615
0.000389
0.000044
0'888 247
O.
037
0.000074
0.000376
0.000000
0.000012
0.00034'1
0.001135
0.004049

0.122078
0.025484
0.002724
0.011735
0.032261
0.032999

0.000407
0.001405
0.000033
0.001409
0.000002
0.000033
0.0~5074 0.000008
0.001149 0.000000
0'833982 8'888881
O. 01539.
1
0.008493 0.000001
0.007101 0.000003
0.000000 0.000000
0.001240 0.000000
0.003949 0.000001
0.003827 0.000003
0.003220 0.000026

Table 15

(continued)

INDUSTRY
1

('

3
4
C;

"R7
9

10
11

ij

42

41

0.031574
0.001581
0.002624
0.015500
0.06371'7

0.000302
0.001744
0.012005
0.000353
0.000345

43
0.019022
0.020328
0.044596
0.015793
0.006289

44
0.000226
0.011843
0.002079
0.000000
0.000000

45
0.000190
0.002285
0.000876
0.001964
0.000164

46
0.000580
0.021418
0.008058
0.002652
0.000018

47
0.000182
0.000003
0.000181
0.000126
0.000000

48

49

50

0.005235
0.000288
0.006975
0.001031
0.000236

0.002497
0.003257
0.001784
0.001170
0.000891

0.008116
0.003026
0.001597
0.016227
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~g

0.01211,
0.004439
0.G13591
0.029469

0.000566
0.000174
0.000714
0.000103

0.006586
0.025352
0.013581
0.003194

0.000000
0.000004
0.000000
0.000000

0.011342
0.000254
0.007534
0.000103

0.000000
0.000054
0.000000
0.000000

0.000000
0.000767
0.000000
0.000000

0.000019
0.002314
0.000290
0.000309

0.002812
0.003289
0.002171
0.003709

0.072787
0.012510
0.021823
0.018753

0.03243?
0.011573
018428
8 .036783

0.015462
0.002268
0.028109
0.004459

0.002559
0.004863
0.002852
0.004432

0.000002
0.000001
0.000002
0.001320

0.000276
0.000123
0.800090
o. 00652

0.001270
0.001280
0.001 262
0.00 077

0.000209 0.000116 0.004Z50 0.004740

0.000251 0.000098 0.003968 0.008858
0.880366 8.880 145 8.88 5756 8.806~19
O. 1314
059 3549 27~64

8:88ylSj
0.000282
0.000992
0.001064
0.004819
0.0053?9
0;008452
0.011837
0.008131
0.024554
0.014594

8:888b98

8:8~~f~2

0.005341
0.003812
0.002282
0.002558
0.00?911
0;002839
0.001868
0.004268
0.001973
0.003079

0.000093
0.000000
0.000000
0.000000
o.nonnno
0;000001
0.000000
0.000000
0.000000
0.000002

0.00012R
0.000095
0.000143
0.000035
n.onnl7n
0;000090
0.002438
0.000145
0.000082
0.000875

8:881561
0.0011A2
0.001211
0.001208
0.001390
n.001907
0;001362
0.002266
0.002041
0.001325
0.003163

8:88?7g~

0.006934
0.013568
0.004994
0.030160
0.011301
0;006424
0.005984
0.005793
0.01740?
0.01901?

0.001074
0.001110
0.000478
0.001272
0.00n778
0;000424
0.000406
0.000157
0.000569
0.000236

0.000075
0.000090
0.000091
0.000249
0.000078
0;000099
0.000067
0.000886
0.000088
0.000119

0.001078
0.003695
0.001717
0.004225
0.006420

l~

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~~

~~

8:8oa~;~

i~

19
20
21
2?
?3
?,.,

?7

2A
1'9
30
31
3?
33
34
35

8:88tg3~ 8:88g88~ 8:8874t~

0;007~56

0.004 092
0.007 8 43
0.005555
0.009949

8:8y,g$
0.014342
0.010658
0.005137
0.005020
0.005160
0;003525
0.003294
0.005159
0.005054
0.003887

,
w

Table 15

(continued)

INDUSTRY

~9

38
39
4Q
41
4?
4,
44
4S
4,.,
47
48
49
50
51
5?
51
54
55
56

41

42

43

8:881~ig 8:88f~~ 8:8o+~2~

0.02285'5
0.04015'"
0.038808
0.189578
0.09260?
0.008463
0.00120'5
0.000815
0.00272'5
0.000071
0.001359
0.000371
0.00014'"
0.0010?8
0.000000
0.000201
0.01894R
0.010350
0.027657

0.003528
0.002352
0.000662
0.010312
0.054R93
0.009442
0.000691
0.002573
0.001055
0.000003
0.001178
0.000728
0.000047
0.001665
0.000000
0.000037
0.018317
0.005132
0.027649

0.006217
0.018981
0.033206
0.006707
0.003131
0.001646
0.017444
0.099123
0.001933
0.011251
0.015179
0.033196
0.046465
0.00S208
0.129359
0.043304
0.001607
0.004904
0.000344

44

8:888888
0.000000

0.000546
0.000000
0.000010
0.000001
0.000783
0.22?517
0.000057
0.000485
0.000000
0.001701
0.n01270
0.000000
0.003867
0.000000
0.ono009
0.no0012
0.000011
0.n24486

45

46

8:88?~~A 8:88iIg~

0.000866
0.000155
0.000051
0.000286
0.000083
0.000986
0.002148
0.022187
0.024676
0.000191
0.008688
0.008017
0.000513
0.002959
0.000000
0.000151
0.000152
0.000832
0.119730

0.001317
0.001207
0.001222
0.002590
0.001343
0.004473
0.000007
0.002095
0.053684
0.000017
0.007981
0.021213
0.000429
0.n05084
0.000000
0.000123
0.000268
0.000923
0.100523

47

8:8?3jZl
0.002840

0.082021
0.001171
0.002547
0.000493
0.000000
0.000118
0.00n086
0.000164
0.011998
0.000296
0.00n029
0.00?495
0.001341
0.000000
0.000827
0.00n417
0.000226
0.000000

48

49

50

8:8888~8 8:88~5gj 8:8j;~~~

0.000074
0.000028
0.000051
0.000310
0.000101
0.000915
0.003012
0.001366
0.013436
0.000024
0.026051
0.012139
0.000021
0.016553
0.000000
0.000164
0.002053
0.001517
0.038639

0.005409
0.001086
0.010950
0.006206
0.007806
0.001387
0.007868
0.016483
0.011399
0.011536
0.011506
0.028831
0.003252
0.022477
0.000000
0.018259
0.032104
0.010482
0.024045

0.017646
0.007155
0.010491
0.021069
0.005560
0.000969

0.001~04

0.002232
0.003581
0.023295
0.007367
0.002096
0.018209
0.013668
0.000000
0.005438
0.00376~
0.005656
0.000131

Table 15

(continued)

.j:>.

51

INDUSTRY

52

53

54

55

56

0.028071 0.000000 0.033972 0.000007 0.00i'689 0.048622

0.008767 0.000000 0.014899 0.000000 0.009986 0.053481

0.011269 0.000000 0.032082 0.000000 0.007434 0.073397

8:8~~4~

8:888888

8:8Y~~~~

8:888880

8:86~g~~ 8:hf~8~~

fI

0.Oi5287
0.0 4567
0.020476
0.003058
0.013175
0.01566?
0.016337
0.014813
0.023669
0.0172f18
0.030731
0.01710fl

0.000008
0.00000
0.000000
0'800000
O. 00000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000

0.057601
0.036092
0.053821
0.175867
0.009066
0.037713
0.029006
0.032959
0.025932
0.033245
0.008569
0.008728

8.080000
.0 0000
0.000000
0.000003
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000

0.029513
0.014978
0.023740
0'846013
O. 28480
0.011128
8.006335
.010351
0.015563
0.010107
0.007585
0.034409

0.247185
0.092093
0.208152
0.026385
0.137107
0.094384
0.139446
0.064392
0.170016
0.171498
0.081055
0.142386

0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000

0.016815
0.017752
0.015345
0.014073
0.022209
0.006003
0.005514
0.006055
0.005881
0.004501
0.009906
0.019249
0.005814
0.011136
0.011262
0.018518

0.000002
0.000001
0.000000
0.000001
0.000002
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000001
0.000000
0.000000
0.000000
0.000002

0.006849
0.006671
0.009617
0.006950
0.018932
0.005696
0.004992
0.012233
0.007496
0.002614
0.010675
0.009674
0.023876
0.015674
0.011858
0.009173

0.062807
0.097200
0.052023
0.076862
0.078099
0.085270
0.031637
0.084653
0.038952
0.072675
0.064178
0.063639
0.051590
0.074381
0.067003
0.062812

e;
7
q
8

10
I1

Ii'
13
14
Ie;
16
17

l~

20
21

23
24

2e;

26
?7
28
2q
30
31
3?
33
34
3<=;

8:8~3~e~

0.032839
0.037655
0.043147
0.01864?
0.01350fl
0.03443?
0.011239
0.033998
0.034244
0.141526
0.021756
0.031690
0.02034?
0.02171?
0.030254
0.019794

8:888888
0.000000

8:8i~~j 8:88888~ 8:88~~g~ 8:8~~~~?

,
Ul

Table 15

(concluded)

INDUSTRY
3"
37
38
39
40
41
4(>
43
44
45

51

52

53

54

56

4"

0.011757
0.025795
0.025223
0.005513
0.027094
0.027137
0.027540
0.051230
0.010800
0.014904
0.050267

0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.008888
0.00
0.000000

0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.01649~ o.oonooo
0.01798 0.000000
0.019400 0.00n003

0.011267
0.020832
0.013729
0.001758
0.022918
0.016526
0.008277
0.030583
0.085684
0.0 9667
0.006069

0.130238
0.236840
0.118323
0.045723
0.130227
0.129104
0.094833
0.031584
0.050939
0.061314
0.081269

49
50
51
5;>
53
54
55
5f>

0.013013
0.015573
0.011594
0.000000
0.00305?
0.01541R
0.021666
0.125884

0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000

0.020788
0.021990
0.054776
0.009002
0.086200
0.034622
0.041790
0.000000

0.027685
0.005484
0.016089
0.000000
0.024715
0.029616
0.037537
0.075487

0.032218
0.018358
0.100135
0.000000
0.075203
0.079107
0.075264
0.010510

tA

8:8~~~~~

8:888888

0.014507
0.009018
0.017800
0.019905
0.007588
0.017517
0.018961
0.010691

55

8:8~1Z0~ 8~88888~ 8:8~~bf~ 8:8qblo~

0.000002
0.000000
0.000012
0.000000
0.000146
0.000009
0.000008
0.000000

The Authors

Robin W. Boadway, a native of Saskatchewan, was born in 1943. Following

graduation in engineering from the Royal Mil itary College of Canada, he took
the B.A. and B.PHIL. degrees from Oxford University and a PH.D. in economics
from Queen's University. A member of the Canadian Armed Forces from 1964
to 1972, he also served as Lecturer in Economics at RMC from 1969 to 1972 and
has taught at Queen's University since 1972. He is an Associate Professor in the
Department 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 from
Queen's University. After serving in the Royal Canadian Navy, Dr. Treddenick
taught at RMC from 1967 to 1973. In 1973/74 he was Ch ief of the Econometrics
Division of the National Energy Board, returning in 1974 to RMC, where he is an
Associate Professor in the Department of Political and Economic Science.

The Centre for Resource Studies

The Centre was established in 1973 through the sponsorship of Queen's University, the
federal Department of Energy, Mines and Resources, and The Mining Association of
Canada. 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 mineral
resource policy. Mineral resources considered by the Centre include the metallic,
industrial and non-metallic, and structural minerals, but exclude petroleum and natural
gas.
The prime function of the Centre is to carry out a program of research and
publication on mineral policy issues. The program provides research and educational
'opportunities in resource studies at Canadian universities, and furnishes reliable
information to promote a more fruitful exchange between representatives of the various
groups concerned with resource policy. Through the continuing support of the sponsors,
research by qualified investigators is funded at the Centre, in various departments at
Queen's University, and at other Canadian universities. Research reports are reviewed
by recognized authorities in each field before publication, in order to maintain high
standards of scholarship, but no restrictions are imposed on authors at any stage of the
investigation. The Centre's publications attempt not only to provide reliable data, but to
present research results in a clear and readable form. Reports employ non-technical
language, so far as the subject allows, to enhance their value to non-specialists. In this
way, 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 and
establishes priorities for research. The chairman is Dean R. J. Hand, and the executive
director is Dr. C. G. Miller. There are fourteen other members - seven nominated by
Queen's University, four by the Mining Association of Canada, and three by the federal
government. Guidance on the research program, together with discussion of policy
issues and other matters, is provided by the Advisory Council. This body comprises all
researchers associated with the Centre and other, appointed, members drawn from such
groups as governments, industry, labour, and consumers. Committees of specialistsprimarily from Queen's University, but also including representatives of government
and industry - aid in the development of projects and the selection of research
proposals, and advise on the progress of the research. Aside from the main research
program, which is carried out at the Centre and by means of contracts, small
exploratory studies are funded through a system of grants-in-aid of research. The
executive director and staff are responsible for the work of the Centre within this
framework.
The Centre welcomes comments on its publications, proposals for research
projects, or enquiries about any aspect of its work.
Centre for Resource Studies/Queen's University/Kingston, Ontario/Tel: (613) 547-5957

116

117