Economic Analysis of Interprovincial and
International Exports
Md Asif Quasem
August 7, 2024
1
Introduction
This report analyzes the relationship between interprovincial and international exports in
Canada using statistical methods and machine learning models. It covers data cleaning,
descriptive statistics, trend analysis, regression analysis, and provides policy recommendations based on the findings.
2
Overview
Interprovincial trade refers to the exchange of goods and services between provinces within
Canada, while international trade involves transactions between Canadian provinces and
foreign countries. Understanding these trade dynamics is crucial for policy-making and
economic planning.
Trade Patterns:
Interprovincial trade in Canada is characterized by the movement of goods and services
across provincial borders, driven by regional specializations and comparative advantages
(Krugman & Obstfeld, 2018). For example, natural resource-rich provinces like Alberta
and British Columbia export energy resources to other provinces, while manufacturingheavy regions like Ontario supply industrial goods. International trade, on the other
hand, involves exports and imports between Canada and other nations, with major trading partners including the United States, China, and Mexico. This trade is influenced by
global demand, exchange rates, and international trade agreements such as the USMCA
(United States-Mexico-Canada Agreement) (Krugman & Obstfeld, 2018).
Key Players:
In interprovincial trade, key players include provincial governments, regional businesses, and industry associations. Each province has its own economic policies and trade
regulations that affect intra-national trade (Deloitte, 2021). For international trade, key
players include federal agencies like Global Affairs Canada, international corporations,
trade organizations, and foreign governments. The federal government negotiates trade
agreements and implements trade policies that impact cross-border commerce (Deloitte,
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2021).
Economic Impacts:
Interprovincial trade contributes to regional economic stability and growth by enabling provinces to access a diverse range of goods and services. It helps balance regional
disparities by allowing provinces to specialize in areas of comparative advantage (Krugman Obstfeld, 2018). International trade, meanwhile, plays a crucial role in Canada’s
economy by expanding market opportunities for Canadian businesses, enhancing competition, and driving innovation. It influences domestic industries by exposing them to
global competition and new technologies, while also affecting employment and economic
growth through export and import activities (Deloitte, 2021).
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Data Cleaning and Preparation
The dataset was cleaned by handling missing values and converting currency columns
from strings to floats. A unique Panel ID was created for each observation.
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Descriptive Statistics
Max
Interprovincial Exports
146,718.50
International Exports
291,476.50
Count
Mean
Std
Min
25%
50%
75%
140
36,222.55
38,432.21
1,133
8,141.4
17,989.05
62,133.80
140
56,293.15
69,755.59
925.4
11,257.78
17,897.45
86,472.40
Table 1: Descriptive Statistics
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Trend Analysis
The trend analysis was conducted to visualize the export patterns across provinces. The
results are illustrated in Figure 1. The graph shows the fluctuations in export values over
time, highlighting significant trends and patterns that provide insights into the economic
conditions affecting interprovincial and international trade.
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Regression Analysis
The Ordinary Least Squares (OLS) regression was performed to model the relationship
between interprovincial and international exports. The OLS regression helps in understanding how variations in international exports can explain variations in interprovincial
exports.
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Figure 1: Trend of Exports by Province
Regression Results:
Intercept
International Exports
Coefficient
5696.8962
0.5423
P-value
0.000
0.000
• R-squared: 0.969
• Adjusted R-squared: 0.968
• F-statistic: 4270
• Prob (F-statistic): 1.09e-105
• Durbin-Watson: 0.422
• Condition Number: 1.15e+05
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Machine Learning Model
A Random Forest model was employed to capture the non-linear relationship between
the variables. This model provides additional insights beyond the linear assumptions of
the OLS regression.
Random Forests Result:
Mean Squared Error: 34,875,959.78
R-squared: 0.975
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8
Policy Recommendations
Based on the analysis, the following policy recommendations are proposed:
• Enhance Growth of Interprovincial Exports: To foster economic growth and
improve trade balance, it is recommended to implement policies that reduce trade
barriers between provinces. This aligns with the arguments made in Deloitte’s
report on the benefits of liberalizing interprovincial trade (Deloitte, 2024).
• Develop Initiatives to Boost International Exports: Focus on expanding
international market reach, especially in high-value sectors identified through the
analysis. Supporting export-oriented industries can help leverage Canada’s global
trade opportunities (Krugman & Obstfeld, 2018).
• Address Autocorrelation Issues: Investigate the causes of the low DurbinWatson statistic, which suggests potential autocorrelation in residuals. This can be
addressed by revising model specifications or applying robust statistical methods
(Krugman & Obstfeld, 2018).
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Conclusion
The analysis depicts a strong relationship between interprovincial and international exports. The OLS regression results indicate a high degree of linear association, with
significant coefficients and a strong R-squared value. The Random Forest model further
corroborates these findings by revealing a high R-squared and relatively low mean squared
error, indicating a good fit and predictive capability.
The findings suggest that enhancing interprovincial trade and developing international
export initiatives are crucial for economic growth. Addressing the autocorrelation issue
identified in the regression model can further improve the accuracy of trade forecasts and
policy effectiveness.
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References
• Krugman, P., Obstfeld, M. (2018). International trade theory and policy (11th
ed.). Pearson.
• Deloitte. (2024). The case for liberalizing interprovincial trade in Canada. Retrieved from https://www2.deloitte.com/content/dam/Deloitte/ca/Documents/
finance/ca-en-the-case-for-liberalizing-interprovincial-trade-in-canada-aoda.
pdf
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