Growth and Change

Vol. 38 No. 4 (December 2007), pp. 696–722

Space, Time, and Local Employment Growth:

An Application of Spatial Regression Analysis
RICHARD SHEARMUR, PHILIPPE APPARICIO, PAULINE LIZION, AND
MARIO POLÈSE,

ABSTRACT Local and regional employment growth is generally studied either by searching for
local qualitative explanatory factors such as governance, synergy between firms, and milieu
effects, or by searching for general growth factors using statistical techniques. The body of work
that relies on this approach has tended, in keeping with economics’ nomothetic tradition, to assume
that local and regional growth factors are constant over space. The focus of this paper is on
exploring the spatial stationarity of employment growth factors in Canada, but it also seeks to
clarify some of the broad principles behind spatial regression techniques in order to provide a
point of entry and a conceptual framework for empirical researchers. To do so, we apply a recently
developed technique, Geographically Weighted Regression (GWR), and we explore the method’s
advantages and limits for answering our research question. We find evidence that growth factors
differ across Canada, but we also conclude that the GWR technique, given the number and shape
of regions available for our analysis and given certain limitations that are currently inherent to the
method, can only provide tentative and exploratory results.

Introduction

M any local and regional governments attempt to implement development policies in

order to bolster employment growth at the local level (Blien, Suedekum, and Wolf
2005; CRP 2001; James, Ilvento, and Hastings 2002; OECD 2002). Employment growth is
of particular importance because it is often employment, as opposed to income levels
or gross domestic product (GDP), that determines whether or not particular communities
will survive (Martin and Tyler 2000). Although it is recognized that local qualitative factors

Richard Shearmur is a professor in the Spatial Analysis and Regional EconomicsLaboratory, INRS,
Urbanisation, Culture and Society in Montreal. His email address is: Richard_Shearmur@
UCS.INRS.Ca. Philippe Apparicio is a professor in the Spatial Analysis and Regional Economics
Laboratory, INRS, Urbanisation, Culture and Society in Montreal. His e-mail address is:
Philippe_Apparicio@UCS.INRS.Ca. Pauline Lizion is a student in the Spatial Analysis and Regional
Economics Laboratory, INRS, Urbanisation, Culture and Society in Montreal. Her e-mail address is:
Pauline_lizion@yahoo.fr. Mario Polèse is a professor in the Spatial Analysis and Regional Economics
Laboratory, INRS, Urbanisation, Culture and Society in Montreal. His e-mail address is:
Mario_Polese@UCS.INRS.Ca. They gratefully acknowledge three anonymous referees and the editor
for their helpful comments and suggestions.They remain solely responsible for the contents of the article.

Submitted July 2006; revised June 2007; accepted August 2007.

© 2007 Blackwell Publishing, 350 Main Street, Malden MA 02148 US and 9600
Garsington Road, Oxford OX4, 2DQ, UK.
 SPACE, TIME, AND LOCAL EMPLOYMENT GROWTH 697

such as governance, cooperation between firms, and milieu have considerable influence on
employment growth prospects (Cooke, Heidenreich, and Braczyk. 2004; Gallaway and
Hudson 1994; Maillat and Kébir 2001; Malecki and Oinas 1999), it is also stressed that
these local intangible factors act in conjunction with wider structural factors and local
measurable attributes that are often difficult to change (Martin and Sunley 1998; Parr 2001;
Polèse and Shearmur 2006). Such measurable factors are identified and analysed by way of
statistical analysis.
In this paper we explore whether certain structural factors and measurable attributes that
have been found to influence local employment growth do so in the same way across space.
In other words, we test whether a simple employment growth model that provides adequate
explanation for local employment growth across Canada between 1991 and 2001 is equally
applicable in all parts of Canada. Blein, Suedekum, and Wolf (2005) and Shearmur and
Polèse (2007) have already shown that time is important in determining whether or how a
particular factor is related to growth. Increasingly, it is also being recognised that the effect
a particular factor has on growth may be context dependent: its effect may also vary across
space (Huang and Leung 2002; Partridge and Rickman 2005). Should it be determined that
the relationship between employment growth and particular factors (such as education
levels, industrial structure, wages, population size, and industrial diversity) vary across
space (and time), then this will suggest that it is extremely difficult to design universally
applicable local development policies.
The structure of the paper is as follows. After briefly presenting the context within which
regional employment growth is analysed, various broad methods for exploring regional
growth from a statistical perspective are discussed. The method retained and the data used are
presented, and empirical results covering Canada are analysed. These results, of interest in
their own right, are also discussed in relation to methodological considerations.

Factors of Regional Employment Growth

Generally speaking, local employment growth—and indeed local development—can be
attributed to three types of factors. First, the local institutional context (Cooke, Heidenreich,
and Braczyk 2004), specific actors (Galaway and Hudson 1994), interfirm dynamics, and
knowledge spillover (Malecki and Oinas 1999; Porter 1990) are put forward. In particular,
researchers in the field of innovation studies describe how certain regions, by combining
these factors in particular ways, have managed to develop local innovative systems (Cooke
et al. 2004). However, such factors are difficult to measure and include a substantial
qualitative component, making their effects difficult to capture using a statistical approach
(Doloreux, Shearmur, and Filion 2001). Numerous case studies have described how such
factors can induce employment growth at a local level, but notwithstanding these cases, it is
difficult to generalise from them (Markusen 1999). Rather, a set of best practices can be
determined and can serve as a basis for implementing policies in other regions (OECD 2001).
The second type of factor that can affect local employment growth is also local but can
more easily be measured. An area’s endowment in human capital (Florida 2002; Romer
1989), its industrial structure (Porter 1998), its local costs (Weber 1929), and level of
698 GROWTH AND CHANGE, DECEMBER 2007

diversity (Jacobs 1984; Porter 1990) are all put forward as growth factors. The effect of
such factors on employment growth is verified by way of statistical analysis of various
sorts: a large group of regions or cities is usually analysed, and the effect of each factor on
growth is then determined using techniques such as regression analysis (Beckstead and
Brown 2003; Florida 2002; Shearmur and Polèse 2007). Similar techniques are also used
to identify growth factors for nations (Barro and Sala-i-Martin 1995). From this type of
analysis certain general conclusions are drawn. Florida (2002), for instance, suggests that
a highly educated local workforce is conducive to local growth (of employment and
income). Henderson (2003) shows that local specialization in particular industries tends to
lead to employment growth in the industry, and Quigley (1998) shows that for a region, a
diverse economy tends to be associated with growth.
These conclusions are not always generally accepted. For instance, as Blien, Suedekum,
and Wolf (2005) point out, there is an ongoing debate between researchers who contend that
a diverse economy leads to growth (Jacobs 1984; Markusen 1996; Quigley 1998) and those
who contend that specialization is conducive to growth (Porter 1996). Florida’s (2002)
contention that for regions, an educated workforce is conducive to growth while to some
extent compatible with human capital theory is not supported by evidence in the Canadian
case after controlling for other growth factors (Shearmur and Polèse 2007). Thus, despite
the theoretical possibility of deriving general conclusions about the effect of certain
measurable local factors on growth, a general model has so far proved elusive.
The third type of factor that can be considered when analysing local employment
growth is structural. By structural we do not mean industrial structure (which we consider
to be a local factor of the second type), but geographic and historical structures. Geo-
graphic location, and particularly proximity to markets (Krugman 1995; Partridge et al.
2006), historical trends or accidents (Krugman 1995; Davis and Weinstein 2002), and the
centre–periphery and urban–rural divides (Parr 2001) have been put forward as having an
effect on employment growth outcomes. To the extent that, over the last twenty years or so,
there has been greater emphasis on local development (Martin and Sunley 1998; Parr
2001), policy makers have tended to take less interest in these wider structures (Eisinger
1988; Keating 1993). This can partly be attributed to the failure of top-down policies
implemented in the 1960s and 1970s, which were destined to balance growth across wide
geographic areas (Rowlands 1994), and partly to the fact that statistical models, which are
used to describe geo-structural effects, fell out of fashion over this period (Philo, Mitchell,
and More 1998). They were often seen as too simplistic—unable to deal with the qualitative
factors that are also important for understanding development—and as tending to make
grandiose claims about development factors that did not bear out in practice.

Recent Statistical Approaches for Exploring Local Growth Factors

With the advent of more powerful computers, large quantities of data, and with the
natural ebb and flow of academic approaches, the quantitative study of local employment
growth has, over the last ten years or so, regained some respectability.1 There is a better
realization among practitioners of applied statistical methods of the limits inherent to these
 SPACE, TIME, AND LOCAL EMPLOYMENT GROWTH 699

methods and of their complementarities with qualitative and case-driven work (Philip
1998). Applied statistical methods are also increasingly sophisticated, and, in particular,
spatial statistics are developing at a rapid pace (Anselin, Florax, and Rey 2004; Fothering-
ham, Brundson, and Charlton 2000).
However, as we have seen in the preceding section, there is no common agreement
among quantitative analysts of regional employment growth as to exactly which factors
exert an influence and in what way. Recently, though, two arguments have been developed
that may account for at least some of the disagreement, and may indeed reconcile a variety
of differing positions.
First, it has been suggested that identical factors may exert their influence in a different
way depending on the period analysed (Massey 1995; Shearmur and Polèse 2007; Stram-
bach 2001). In their study of Canada, Shearmur and Polèse show that although local
employment growth can be quite well modelled over three decades, the influence of specific
factors differs across time. For instance, education levels, strongly associated with employ-
ment growth in the 1980s, are not associated with employment growth in the 1970s and
1990s. Blien, Suedekum, and Wolf (2005), who analyse the effect of diversity and industrial
concentration on growth in Germany, show that industrial structure only tends to have a
short-term effect, and Strambach, writing on Stuttgart of the early 1990s, says that “during
global changes, a given top position in technological fields is no guarantee of the future
competitiveness of a region.” Thus, depending on the period analysed, one may conclude
that industrial structure does or does not have a growth impact. Although these three studies
include time in different ways, they demonstrate that the effect of any particular factor on
local employment growth may depend on when the study is made.
The second argument that points to how diverging conclusions may be reconciled is put
forward by spatial analysts. On the one hand, some analysts argue that there may be spatial
non-stationarity in growth models. Identical factors may have a different effect on growth in
different regions (Fotheringham, Brundson, and Charlton 2000; Partridge and Rickman
2005): Geographically Weighted Regression (GWR) models seek to explore how regression
coefficients vary over space. On the other hand, it is argued from a different perspective
(Anselin 1988; Anselin, Florax, and Rey 2004) that spatial autocorrelation of dependent and
independent variables may bias estimates in regression analyses: this bias may lead to
unstable or conflicting results. Auto-regressive methods, which maintain the assumption that
a single model applies across space, have been developed to correct for this type of bias.

Spatial Regression and the Analysis of Regional Growth:

Some Key Concepts
As outlined earlier, there exists a wide variety of approaches to integrating space into
the analysis of regional growth (Anselin 1988; Anselin, Florax, and Rey 2004; Fothering-
ham, Brundson, and Charlton 2000). Many of these (relatively recent) methods are under-
going constant refinement and are subject to debate among econometricians (Anselin,
Florax, and Rey 2004; Le Sage 2004; Wheeler and Tiefelsdorf 2005), making the practi-
cal implementation of these methods by empirical analysts who are not specialists
700 GROWTH AND CHANGE, DECEMBER 2007

problematic.2 However, even if the array of methods and refinements may seem daunting to
users unfamiliar with them, understanding certain of the basic principles that underpin
spatial regression analysis can be helpful. With this in mind, an initial way of categorising
them is to divide them into two broad families.
Auto-regressive methods. A first family of approaches stems from an economic
tradition. From this nomothetic perspective, there ought to exist a law-like model that is
valid across space (and indeed time) that captures some fundamental and general growth
processes. At its most basic, this approach can be implemented by way of a regression-type
analysis that considers each region as an independent observation. However, as Anselin
(1988) and other spatial econometricians have pointed out, the assumption of independence
is not respected if the processes under study are spatially dependent (in other words if
factors in one spatial unit affect those in other spatial units in a nonrandom way). A family
of auto-regressive spatial methods that incorporate spatial dependence of the dependent
(spatial lag) or independent (spatial error) variables has thus been developed (Anselin
1988; Anselin, Florax, and Rey 2004; Cliff and Ord 1981; Griffith 1988, 2003; Haining
1990). By modelling spatial dependence by way of a spatial weights matrix,3 and by
producing coefficient estimates that are unbiased in relation to this hypothesised spatial
dependence, models are thereby improved. However, the assumption of spatial stationarity
is not questioned.
It is easy to assume, when using auto-regressive models, that spatial auto-correlation
necessarily indicates bias. This is often the case (e.g., if the dependent effect diffuses across
space, or if a spatially structured causal factor is absent from the model), but can only be
ascertained through a wider theoretical understanding of the specific processes being
studied. It is feasible that a local variable has a purely local effect and that spatial
autocorrelation, if observed, is spurious;4 in such a case, corrections for spatial autocorre-
lation may themselves lead to bias. In the case of regional growth, though, it is reasonable
to assume that the effect of explanatory variables on growth is not contained within spatial
units, especially if these units are relatively small sub-national units. However, the distance
over which spatial dependence occurs and the strength of this dependence are unknown and
probably differ for each explanatory variable. The use of a unique spatial weights matrix
can therefore be considered restrictive, although spatial econometrics is rapidly evolving in
order to overcome this type of restriction (Anselin, Florax, and Rey 2004).
GWR. A second family of spatial regression models draws upon the ideographic
tradition of geography. From this perspective, the assumption of spatial stationarity is
questioned. Each place or region is unique, and it is feasible that different processes occur
in different areas (Fotheringham, Brundson, and Charlton 2000, 2002). Thus, a different
regression model is calculated for each observation (spatial unit). This type of spatial
regression (GWR), like auto-regressive models, requires the definition of a spatial weights
matrix, but for different reasons. In GWR the matrix defines a moving window (or band-
width) over which each local model is calculated: within the bandwidth, observations are
weighted so that more distant observations carry less weight in the local regression than
nearby ones. The size of this bandwidth can be measured as a fixed number of closest
 SPACE, TIME, AND LOCAL EMPLOYMENT GROWTH 701

neighbours or as a maximum distance. Whichever metric is used, information maximising

algorithms can be applied to optimise the bandwidth’s size. However, once defined, the
spatial weights and bandwidth are assumed constant across space, although they may in
fact differ across regions. Another limitation of this approach is the fact that each local
regression is usually calculated on a subset of observations (those within the bandwidth):
for databases with a small number of observations, local models may lack robustness
because of reduced degrees of freedom. Finally, even if the global ordinary least squares
(OLS) model from which GWR is derived is robust, GWR as it is currently applied does not
account for outliers, heteroskedasticity (Le Sage 2004) or multicollinearity (Wheeler and
Tiefelsdorf 2005) for each local regression. These limitations, inherent to the method as it
now stands, mean that GWR results should be interpreted with caution.
Discussion of the two approaches. Both GWR and auto-regressive models therefore
begin by defining spatial weights matrices that look identical. Each matrix incorporates two
parameters.

1. A bandwidth (GWR) or maximum distance over which spatial dependence is thought to

exist,5
2. A distance decay function that defines the weight of each observation in the local
regression (GWR) or the strength of the spatial dependence over distance.
For auto-regressive models, the bandwidth and the distance decay function incorporate
theoretical assumptions about the nature of the process being studied. For GWR, the
bandwidth is optimised to maximise the variance explained, and the distance decay func-
tion is a means whereby Tobler’s law6 can be incorporated. Despite these similarities, the
fundamental purpose of the matrix is different in each case. In GWR, the matrix specifies
the extent of the “local” for which local regressions are estimated, with limited theorising
of what this “local” represents. In auto-regressive models, the matrix specifies the shape
and extent of spatial dependence for which bias is corrected.
These two techniques are complementary—and it is probable that they will eventually
be combined. Under GWR, each local regression would benefit from reducing bias because
of spatial interaction effects (and indeed bias because of outliers, heteroskedasticity, and
multicollinearity) that occur within the area defined as local; thus, each local regression
would benefit from the bias corrections that auto-regressive models can provide. Under
auto-regressive models, the hypothesis of spatial stationarity may not be justified: GWR
can provide information on the validity of this assumption. In the remainder of this article
we will apply each approach separately (using easily available software)—but it should be
borne in mind that each can tell us something very different about the nature of the growth
model being investigated and that ideally the two should be combined.

Factors of Employment Growth in Canada

The purpose of the analysis is to explore to what extent conclusions that can be drawn
from applying a simple model of employment growth to 1991–2001 data also hold if the
702 GROWTH AND CHANGE, DECEMBER 2007

relationship is allowed to vary across space (by applying a GWR techniques) and, second-
arily, across time (by analysing data for 1971–1981 and 1981–1991).

Data and Methodology

All data in this analysis are derived from the Statistics Canada census. Socio-economic
data are derived from specially compiled 2B profiles: these profiles correspond to data
expanded from the 20 percent sample that Statistics Canada surveys with a long question-
naire. They are compiled in such a way that all geographic boundaries remain constant
over time and correspond to the 1991 boundaries. Employment and sectoral data (used to
calculate the diversity index and industrial structures) are derived from specially ordered
employment data that respect the 1991 geographic boundaries. Industrial classification is
based upon the 1970 and 1980 Standard Industrial Classification (SIC) codes: when
aggregated to eighteen sectors (see the Appendix) these data are strictly comparable across
1971, 1981, and 1991. Total employment for 2001 is drawn from a similar database based
upon the 1997 North American Industrial Classification System (NAICS).
In total, the data comprise 358 spatial units, of which 144 are urban areas of over 10,000
people (as defined by Statistics Canada), and 214 are rural areas (i.e., census divisions in
which there are no urban areas of over 10,000 inhabitants) (Figure 1).
The growth model that we propose to analyse is inspired by Shearmur and Polèse
(2007). However, we have deliberately dropped the dummy variables that were used to
model spatial structures (spatial structures should emerge from the GWR approach) and
have transformed industrial classification variables into continuous factor scores (Table 1).
We have nevertheless retained the (Xi, Yi) coordinates for each region: as we will see, the
spatial variation of these variables’ effect is of interest.
The simplified growth model that we investigate is as follows:

E i = I + a ( LPi ) + b ( PG i ) + c (SALi ) + d (SPi ) + e ( F1i ) + f ( F2i ) + g ( F3i ) + h ( F4i ) + i ( F5i ) +

j( X i ) + k ( Yi ) + ε i
where Ei is local employment growth in region i, I is the intercept; LPi is log of population;
PGi is percentage of the population over the age of 15 with a university degree; SALi is
the local mean salary (in $10,000s); SPi is an index of industrial specialization (see the
Appendix); F1i to F5i are factor scores corresponding to industrial structure; Xi is the
Universal Transverse Mercator (UTM) East–West coordinate measured in 1,000 km; Yi is
the minimum distance to the U.S. frontier (measured in 1,000 km); a to k are regression
coefficients to be estimated; and ei is the error term.
The growth model thus expressed is a global growth model. The regression coefficients
are the same for all 358 regions: only the local attributes of each region (e.g., LPi, PGi) vary,
giving a different prediction of Ei and a different residual, ei, for each region. The inter-
cept, like the coefficients, is common to each region. As it is reasonable to assume that
the independent variables’ causal effects diffuse over space, then the model violates
the assumption of independence between observations. We therefore also present an
auto-regressive spatial error model that corrects for bias because of this type of spatial
 SPACE, TIME, AND LOCAL EMPLOYMENT GROWTH 703

FIGURE 1. GEOGRAPHIC UNITS AND STUDY AREA, CANADA.

dependence (the spatial weights matrix is based upon a distance7 decay function propor-
tional to distance squared—no bandwidth is specified). The global OLS model is tested for
outliers, multicollinearity, and heteroskedastcity. For each period a few outliers are
removed, and the auto-regressive model is applied to the reduced set of observations.
However, the central research question posed in this paper is whether the model varies
across space. In order to explore this specific question, we use the GWR technique
described in Fotheringham, Brundson, and Charlton (2002) and outlined earlier.8 This
technique individually estimates the global model described earlier for each of the 358
spatial units. The model for each spatial unit i can therefore be written as follows:

E i = I i + a i( LPi ) + bi( PG i ) + c i(SALi ) + d i(SPi ) + e i( F1i ) + f i( F2i ) + g i( F3i ) + h i( F4i ) +

ii( F5i ) + ji( X i ) + k i( Yi ) + ε i

The GWR model is identical to the global model except that each spatial unit now has
its own regression coefficients and intercept estimated locally (for a given bandwidth).
704 GROWTH AND CHANGE, DECEMBER 2007

TABLE 1. INDUSTRIAL STRUCTURE VARIABLES, 1971, 1981, AND 1991, 359 CANA-
DIAN REGIONS.

Year Name Component description (sectors correlated with % of

component) variance

1971 F1 High-order services, retail (wholesale and retail), 21.4

communications, NOT primary
F2 Education, leisure, health & social services, NOT 10.1
primary
F3 Transport, hotels and restaurants, construction, NOT 10.1
medium value-added manufacturing
F4 Manufacturing (first transformation, medium value 9.3
added and high-tech), NOT primary
F5 Public administration, high-order services, high-tech 7.9
manufacturing, NOT primary
TOTAL VARIANCE EXPLAINED, 1971 58.8
1981 F1 High-order services, retail (wholesale and retail), 20.8
communications, personal services, NOT primary
F2 Hotels and restaurants, leisure, personal services, 11.1
NOT primary
F3 Public administration, transport, NOT first 9.6
transformation or medium value added
manufacturing
F4 Manufacturing (medium value added and high-tech), 9.2
NOT construction, hotels and restaurants
F5 Education, health and social services, NOT 9.2
construction
TOTAL VARIANCE EXPLAINED, 1981 59.7
1991 F1 High-order services, retail (wholesale and retail), 19,7
communications, personal services, NOT primary,
first transformation manufacturing
F2 Health and social services, education, retail, NOT 12.2
primary, transport
F3 Hotels and restaurants, construction, leisure, transport, 10.6
NOT primary
F4 Manufacturing (first transformation and medium value 9.5
added), NOT primary, transport
F5 Public administration, education, NOT wholesale, 9.3
primary finance
TOTAL VARIANCE EXPLAINED, 1991 61.5

Note: The principal components are described following an orthogonal rotation.

They are based upon location quotients for eighteen sectors as defined in
the Appendix.
 SPACE, TIME, AND LOCAL EMPLOYMENT GROWTH 705

Observations within this bandwidth are weighted, for the purpose of estimating the local
regression, using a bi-squared distance decay function (Fotheringham, Brundson, and
Charlton 2002:57).
2
wij = ⎡⎣1 − ( dij dmax ) ⎤⎦ if
2
dij < dmax
wij = 0 otherwise
where wij is the weight of observation j in spatial unit i’s local regression, dij is the distance
between i and j, and dmax is the largest distance within the k closest neighbour bandwidth.
This function is such that the weight of the most distant spatial unit retained within the
bandwidth is zero. The distance decay function therefore varies for each spatial unit
because a bandwidth based upon a k closest neighbour criterion has been chosen.
For each period studied the optimum bandwidth has been assessed using the cross-
validation method9 (Paez 2005). Given the varying size and shape of our spatial units
(Figure 1), a fixed distance bandwidth would mean that each local regression would have
different degrees of freedom, making it difficult to compare significance levels between
coefficients. As it is, another problem arises because the concept of “local” changes across
space: “local” covers a wide area in Western Canada but only a relatively small area in the
Quebec–Toronto corridor. Furthermore, as discussed in the previous section, the local
GWR models are not tested for heteroskedasticity, multicollinearity, or outliers, and this is
one of the approach’s weaknesses.

Results
Industrial structure in 1971, 1981, and 1991. Before presenting the regression results
it is useful to briefly describe the principal components that serve to define the industrial
structure variables.
For each of the ten-year periods analysed, a principal component analysis is performed
on the eighteen sector industrial profiles of the 358 regions. As industrial structures vary
over time, the industrial structure variables are different for each decade (Table 1).
As can be seen from Table 2 there is a certain correspondence between industrial
structures in each of the three years, and this is verified by examining the correlation
between factor loadings of the eighteen sectors on each of the fifteen factors. Although the
1971 and 1991 components have similar structures, 1981 components differ somewhat.
Global regression results, 1991–2001. Over the 1991–2001 period, a straightforward
OLS regression of the eleven independent variables on employment growth across the 352
regions—six outliers have been removed—explains 41.8 percent of total variance in
employment growth (Table 3).
Three explanatory variables included for theoretical reasons because they are expected
to influence regional growth have no statistically significant effect at the 5-percent level
population size, percentage of graduates, and degree of industrial specialization. There is
a strong negative effect of salary on employment growth: given the industrial structure
and other attributes of each region, employment tends to grow in low-cost areas. Initial
706 GROWTH AND CHANGE, DECEMBER 2007

TABLE 2. CORRELATION BETWEEN COMPONENT LOADINGS (n = 18), 1971, 1981, and

1991.

F1–81 F2–81 F3–81 F4–81 F5–81 F1–91 F2–91 F3–91 F4–91 F5–91

F1–71 0.97 0.13 -0.14 0.19 0.18 0.84 0.15 0.15 0.14 -0.31
F2–71 0.12 0.59 0.02 -0.16 0.80 -0.06 0.77 0.23 0.00 0.35
F3–71 0.07 0.35 0.29 -0.77 -0.36 -0.16 -0.08 0.81 -0.37 0.13
F4–71 0.05 0.47 -0.70 0.55 -0.16 0.16 0.00 0.17 0.92 -0.23
F5–71 0.09 0.34 0.60 0.28 0.12 0.29 0.03 0.02 -0.08 0.72
F1–81 0.85 0.52 0.25 0.09 -0.31
F2–81 0.09 0.37 0.69 0.29 0.38
F3–81 0.05 -0.18 0.04 -0.77 0.67
F4–81 0.44 -0.08 -0.48 0.62 -0.03
F5–81 -0.08 0.80 -0.28 -0.08 0.37

Note: Correlations greater than 0.60 are highlighted in bold.

industrial structure has a very strong effect on subsequent employment growth: F1 (high
order services), F3 (leisure, tourism-related activities), and F4 (manufacturing) are all
positively associated with growth, whereas F5 (public administration and education) is
associated with decline. Finally, proximity to the U.S. is a very strong determinant of
employment growth, as is location towards the west of Canada.
It is reasonable to assume, however, that the OLS estimates are biased because the effect
of each independent variable diffuses across the borders of the spatial units analysed.10
Assuming, therefore, that the effect of a nonlocal independent variable diffuses in propor-
tion to the inverse of the squared distance between observations, Table 4 presents the results
of an auto-regressive spatial error model. As can be seen, regression coefficients are
adjusted, but the direction and general strength of each variable is not fundamentally
changed. The only major changes for the 1991–2001 model concern the regression coef-
ficients of the Xi and Yi variables: they lose their significance, but the direction of the
relationship is maintained. This is not surprising because they are highly autocorrelated
(neighbouring regions have, by definition, similar Xi and Yi coordinates). However, the
strength of the l (spatial dependence) coefficient and the substantial increase in pseudo R2
over the OLS R2 demonstrate that if the characteristics of neighbouring regions are taken
into account, the power of the proposed model is improved. An alternative specification for
the auto-regressive model, spatial lag, could adjust for the effect that growth in neighbour-
ing spatial units has on local growth: we have hypothesised, however, that our independent
variables are possible causes of growth, both locally and in surrounding spatial units, and
we therefore feel that the spatial error specification is the most appropriate for the purposes
of this study.
Do growth factors vary over space? Local regression results, 1991–2001. The key
question that we are seeking to answer in this paper is whether the effects just described are
TABLE 3. OLS REGRESSION RESULTS.

OLS model 1971–1981 1981–1991 1991–2001

variable
b SE p (t ⫽ 0) b SE p (t ⫽ 0) b SE p (t ⫽ 0)

Intercept 0.335 0.200 0.094 0.780 0.117 0.000 0.211 0.120 0.080
LP -0.015 0.019 0.446 -0.047 0.012 0.000 0.003 0.012 0.783
PG 0.950 1.346 0.481 1.415 0.453 0.002 0.328 0.357 0.359
SAL 0.033 0.018 0.072 -0.018 0.004 0.000 -0.006 0.002 0.000
SP -0.034 0.025 0.177 -0.040 0.015 0.007 0.001 0.016 0.925
F1a 0.040 0.017 0.019 0.021 0.010 0.040 0.053 0.011 0.000
F2a 0.038 0.014 0.006 0.003 0.008 0.724 -0.013 0.008 0.114
F3a 0.192 0.014 0.169 0.026 0.008 0.001 0.048 0.008 0.000
F4a 0.032 0.015 0.028 0.010 0.007 0.176 0.039 0.008 0.000
F5a -0.031 0.013 0.016 -0.048 0.007 0.000 -0.041 0.009 0.000
X East (-) West (+) -0.061 0.010 0.000 0.000 0.006 0.940 -0.018 0.005 0.001
Y dist. to frontier 0.207 0.080 0.000 -0.139 0.031 0.000 -0.098 0.031 0.002
R2 0.316 n = 351 0.340 n = 356 0.418 n = 352
Adjusted R2 0.294 0.318 0.399

Notes: The models have been tested for multicollinearity, heteroskedasticity, and outliers. Outlying observations (Cook’s
D > = 0.04) have been deleted. All but one outlier are peripheral rural areas. In 1971 one small city, Elliott Lake (Ontario), is
an outlier.
X is measured in units of 1,000 km, Y is measured in units of 1,000 km to U.S. border, SAL is measured in units of $10,000.
SPACE, TIME, AND LOCAL EMPLOYMENT GROWTH

a
See Table 1.
LP, population; PG, percent of graduates; SAL, salary level; SP, specialisation.
707
TABLE 4. AUTO-REGRESSIVE (SPATIAL ERROR) REGRESSION RESULTS.

Spatial error model 1971–1981 1981–1991 1991–2001 708

variables
b SE p (t ⫽ 0) b SE p (t ⫽ 0) b SE p (t ⫽ 0)

Intercept 0.448 0.195 0.022 0.735 0.117 0.000 0.309 0.117 0.008
LP -0.020 0.018 0.262 -0.037 0.012 0.001 -0.006 0.012 0.629
PG 1.060 1.286 0.410 1.419 0.462 0.002 0.422 0.352 0.231
SAL 0.015 0.020 0.438 -0.024 0.004 0.000 -0.007 0.003 0.008
SP -0.048 0.023 0.041 -0.028 0.014 0.049 -0.005 0.015 0.762
F1a 0.040 0.016 0.010 0.024 0.010 0.016 0.049 0.011 0.000
F2a 0.025 0.014 0.070 -0.008 0.008 0.325 -0.016 0.008 0.053
F3a 0.011 0.013 0.409 0.036 0.008 0.000 0.040 0.008 0.000
F4a 0.009 0.015 0.526 0.001 0.008 0.866 0.027 0.008 0.001
F5a -0.022 0.012 0.074 -0.041 0.007 0.000 -0.030 0.009 0.001
X East (-) West (+) -0.062 0.022 0.006 0.000 0.012 0.987 -0.016 0.010 0.100
Y dist. to frontier 0.307 0.095 0.001 -0.054 0.052 0.295 -0.080 0.049 0.098
L spatial dependence 0.697 0.080 0.000 0.644 0.092 0.000 0.595 0.101 0.000
GROWTH AND CHANGE, DECEMBER 2007

n = 35 n = 35 n = 35
R2 n 0.419 1 0.385 6 0.456 2

Spatial error dependence for weight matrix

Likelihood ratio test DF Value DF Value DF Value
1 46.87 1 17.20 1 17.33

a
See Table 1.
SE, standard error; LP, population; PG, percent of graduates; SAL, salary level; SP, specialisation; DF, degrees of freedom.
 SPACE, TIME, AND LOCAL EMPLOYMENT GROWTH 709

identical across Canada. To do this the same model has been analysed using GWR tech-
niques. The optimum number of closest neighbours, ninety-seven, has been assessed by
using the cross-validation approach (Fotheringham, Brundson, and Charlton 2002). The
adjusted R2 of the GWR model11 is 53.1 percent, an increase of 13.2 percent over the OLS
model.12 Allowing the model to vary over space improves its predictive capability. However,
in this case each local model is not very robust: an eleven-variable model is estimated over
only ninety-seven observations. Thus, although this narrow bandwidth maximises the
cross-validation score, the results should be considered exploratory: only to the extent that
they corroborate existing theories and observations will they be considered valid.
It is not possible to study in detail all of the GWR results. Two types of results will be
considered. First, the Monte-Carlo tests that provide an indication of whether or not the
regression coefficients vary significantly across space (Table 5); second, actual variation
across space of some selected regression coefficients.13 For these, maps will only be
presented for salary (Figure 2) in order to illustrate the type of information provided by
GWR. All other results are summarised in Table 6.
Table 5 shows that only five coefficients display significant variability at the 5-percent
level across space (salary, components F3 and F4, and the XY coordinates). Although this
provides us with some clues as to which coefficients should be examined more closely, it
is important not to dismiss variables that are purported not to vary significantly: if there
are spatial effects that cover only a few of the studied geographic units, Monte-Carlo tests
(which assess spatial variability by repeated sub-sampling) will not necessarily detect them
because there will always be too few units in the sample to provide a statistically significant
effect. Also, there may be spatial autocorrelation of significance levels (which we will only
assess visually) that the Monte-Carlo tests will not pick up. We will therefore discuss the
spatial variation of most coefficients in the knowledge that Table 4 provides a guide as to
which variability is particularly significant.
Population size is negatively associated with employment growth in Southern Ontario
and, more generally, in the whole of Eastern Canada, whereas the relationship is positive in
the West.14 This is interpretable in the following way: the fastest-growing areas in the East
are suburban urban and rural areas close to, but often outside, Montreal, Toronto, and
Ottawa. Thus, there is a tendency for smaller places to grow faster. In the West, fast growth
is occurring within the larger cities—in part because these cities have not yet expanded to
fill their allotted territory; in other words, metropolitan fringe expansion is occurring within
metropolitan boundaries in the West and outside metropolitan boundaries in the East.
An association between degree holders and employment growth is only evident in
certain parts of Eastern Canada. Interestingly, there is a ring of areas, about 100–300 km
away from the Toronto-Quebec corridor, where the local regression coefficient for gradu-
ates is significantly positive. This does not mean that these remote resource areas are
particularly adept at capturing human capital-related growth. Rather, it signifies that
these regions are located between high-graduate/high-growth areas (close to metropolitan
areas) and low-graduate/low-growth areas (far from metropolitan areas). Only for these
specific areas do the closest neighbours include both high-graduate/high-growth and low-
710 GROWTH AND CHANGE, DECEMBER 2007

graduate/low-growth areas; thus, only for these areas does a significant slope appear. In
western parts of Canada, growth is associated principally with resource extraction: this
different growth dynamic is reflected in the lack of association between human capital
and growth.
The results for graduates highlight an interesting problem linked to the interpretation of
GWR results: significant local regression coefficients do not necessarily indicate that the
correlation brought to light reflects processes at work within the particular spatial unit for
which the regression is estimated. Rather, the significant regression coefficients signify that
correlation can be observed across the bandwidth specified for the GWR. If this band-
width spans “high-graduate/high-growth” and “low-graduate/low-growth” regions, then

TABLE 5. GWR RESULTS: PARAMETERS THAT DISPLAY SIGNIFICANT SPATIAL

VARIATION.

GWR model 1971–1981 1981–1991 1991–2001

Variable
p-value p-value p-value

Intercept 0.010** 0.320n/s 0.000***

LP 0.720n/s 0.290n/s 0.170n/s
PG 0.890n/s 0.370n/s 0.420n/s
SAL 0.330n/s 0.520n/s 0.020*
SP 0.660n/s 0.490n/s 0.120n/s
F1a 0.240n/s 0.070n/s 0.310n/s
F2a 0.000*** 0.750n/s 0.340
F3a 0.000*** 0.150n/s 0.000***
F4a 0.070n/s 0.300n/s 0.000***
F5a 0.210n/s 0.520n/s 0.620n/s
X East (-) West (+) 0.000*** 0.000*** 0.000***
Y dist. to frontier 0.000*** 0.010** 0.000***
R2 (for GWR model) 0.459 0.417 0.639
Adjusted R2 0.389 0.369 0.531
N nearest neighbours 193 268 97

Note: As discussed in the text, no tests for multicollinearity, heteroskedasticity or

outliers have been performed on the local models from which the local parameters
are drawn.
Test for spatial variability of parameters (tests based on the Monte Carlo signifi-
cance test procedure): * p < 0.5; ** p < 0.1; *** p < 0.01; n/s = non-significant.
a
See Table 1.
GWR, Geographically Weighted Regression; LP, population; PG, percent of
graduates; SAL, salary level; SP, specialisation.
 SPACE, TIME, AND LOCAL EMPLOYMENT GROWTH 711

the regression coefficients will be significant. In areas where it only spans one of the two
types of regions, and if there is relative homogeneity within the bandwidth, the coefficients
will not be significant.
Only in a small number of areas between Montreal and Toronto is there a significantly
positive relationship between salaries and employment growth (see Figure 2). Everywhere
else in Canada the association is negative. It is significantly negative in traditional resource-
dependent regions in Northern Ontario and Quebec. This suggests that the relationship
between salaries and employment growth is diametrically opposed between the knowledge-
based metropolitan areas of Ontario and Quebec on the one hand and resource-based areas
on the other. This can be interpreted in the following way: in and around metropolitan areas,
agglomeration effects occur. These lead to high wages, but these wages do not discourage
growth because positive externalities associated with the concentration of economic activ-
ity are greater than the increased cost of labour. In traditional resource-based regions,
however, local economies tend to be dominated by large, single factory industries such
as paper-mills, mines, or aluminium smelters. These large employers have traditionally
provided good wages, but these wage expectations have stifled entrepreneurship, a

TABLE 6. VARIATION OVER SPACE AND TIME OF REGRESSION COEFFICIENTS.

1970sa 1980s 1990s

W2 W1 TQ E W2 W1 QT E W2 W1 TQ E

LP . . . . . . - - + . - .
PG . . . . . . . + . + . +
SAL + + . . - - - - . - + -
SP . . . . . . - - . . . .
Industrial structureb
High-order services . . + . . . + + + . + .
Tourism related + . . . . . . . + . + .
Manufacturing - + . . . + . . . + . .
Education/health + . . . - . - - . . - -
Public admin. - . . - + + + + . + -/. .
X East (-) West (+) - -/+ +/- - - + . + +/- . +/. -
Y dist. to frontier + + . + . + . - . . +/- .

a
Geography: W2: West Canada; W1: West Canada, Manitoba and Northern
Ontario, British Columbia to Saskatchewan; TQ: Toronto to Quebec (Quebec-
Windsor corridor); E: Eastern Canada (Eastern Quebec and Atlantic).
b
Similar principal components emerge in each decade (Table 1). In this table, the
five principal types of structure are presented, not their factor name.
LP, population; PG, percent of graduates; SAL, salary level; SP, specialisation.
712 GROWTH AND CHANGE, DECEMBER 2007

FIGURE 2. LOCAL SIGN AND SIGNIFICANCE OF SALARY COEFFICIENT, 1970S, 1980S,

1990S, CANADA.
 SPACE, TIME, AND LOCAL EMPLOYMENT GROWTH 713

phenomenon that Polèse and Shearmur (2006) call the “intrusive rentier syndrome.” This
syndrome is exacerbated by the fact that these large industries are either closing down or
increasing productivity—thus shedding jobs. Therefore, in these traditional resource
regions high wages are associated with low growth.
On the whole, although industrial structure is clearly associated with subsequent growth
(Tables 3 and 4), there is little spatial non-stationarity. High-order services (F1) are asso-
ciated with positive employment growth almost everywhere, particularly around Montreal,
Toronto, and in Alberta. Whereas the Montreal and Toronto effect reflects faster growth
around metropolitan areas (and, within these areas, the fast growth of high-order services),
in Alberta the effect reflects the association between engineering and mining consultants
and the development of oil and gas.
Employment grows faster in tourism-related areas (F3) around Montreal and Ottawa on
the one hand, and in all of Western Canada on the other. This could reflect two different
processes. In the East, it may reflect the growing importance of local tourism: regions
within about two hours of drive of large metropolitan areas benefit from ski hills, weekend
vacations, and the arrival of “young” retirees. These same processes are probably present
in Western Canada, to which can be added the fast resource growth that spawns a demand
for hotels and leisure activities in regions where there is a large population of newly arrived
(often single male) workers.
The presence of manufacturing (F4) is not associated with growth in Eastern
Canada—where most manufacturing is to be found, or in Western Canada, where little
manufacturing activity takes place. However, in Northern Ontario, Manitoba, and
Saskatchewan, the presence of manufacturing appears to make a difference: here, it is regions
that have a higher manufacturing presence that grow faster (or decline more slowly).
The two geographic coefficients show interesting spatial variability. Proximity to the U.S.
border has little effect except in Quebec. In central Quebec, proximity to the U.S. border has
a negative effect on employment growth. This probably reflects the fast growth of amenity–
related areas to the north of Montreal. However, to the east and south of Quebec City,
proximity to the border plays a positive role: these industrial and resource regions do not rely
on tourism and amenities for growth, but they are key manufacturing areas. Proximity to the
border for manufacturing companies enables rapid exports to U.S. markets.
Finally, there is a considerable variation in the effect of moving west on employment
growth. The country is, in effect, divided into two zones. From Newfoundland to the
Quebec–Toronto corridor, moving west is associated with faster employment growth. Then,
from Toronto to Northern Ontario, it is moving east that is accompanied by employment
growth; thus, in Ontario, Quebec, and Atlantic Canada, growth tends to be faster as one
moves toward Montreal and Toronto. Starting in Manitoba, the westward path of growth
continues to Alberta, from whence growth decreases as one moves further west; thus, from
Manitoba to British Columbia growth increases as one moves towards Alberta. From
Table 3 we have seen that this still emerges as a global tendency for growth to be faster in
the West. But whereas the historical argument for this trend may have been valid in previous
decades (a subject to which we will shortly turn), the westward pattern of growth now
714 GROWTH AND CHANGE, DECEMBER 2007

appears to be circumstantial. Growth increases with proximity to Alberta’s oil patch, and
with proximity to the Toronto–Montreal knowledge economy. The Pacific is no longer a
focus of growth.

Does Spatial Non-Stationarity Vary over Time?

Shearmur and Polèse (2007) have already demonstrated that growth factors vary over
time, and the results in Tables 3 and 4 confirm this. The question addressed here is whether
spatial non-stationarity varies over time.
From Table 5 it can be seen that the optimum number of closest neighbours over the
1980s is 268, and that over the 1970s is 198, compared to ninety-seven over the 1990s. This
shows that there is far less spatial non-stationarity in the 1970s and 1980s than in the 1990s
(or at least that this variability occurs on a wider scale and less locally). Indeed, with 268
closest neighbours in the 1980s, each local model is very close to being a spatially weighted
global model. Furthermore, the increase in adjusted R2 between the OLS and GWR models
is 9.5 percent in the 1970s and 5.0 percent in the 1980s, compared to 13.2 percent in the
1990s. This shows that the spatial variability of coefficients is more important to under-
standing growth variance in the 1990s than in previous decades. The increasing fragmen-
tation of growth dynamics across Canada, which suggests a growing regionalisation of
the economy, may be a consequence of increasing trade with the U.S. under the North
American Free Trade Agreement (NAFTA), which came into effect in the early 1990s.
The principal variations of each regression coefficient over space and time are sum-
marised in Table 6, only a few of which will be commented later.
In order to succinctly present these space/time variations, Canada has been divided into
four broad areas: given Canada’s geography and our spatial units, there is little North–
South variation in coefficients, and most differences occur over the following four East–
West areas:
1. the East (Atlantic Canada and Eastern Quebec), which is not very urbanised but is more
densely populated than most of Western Canada.
2. the Quebec-Toronto corridor, Canada’s most densely populated and highly urbanised
and industrialised area.
3. the mid-West: Northern Ontario and Manitoba, Canada’s least urbanised and least
densely populated area.
4. the West: Saskatchewan to British Columbia. This area comprises certain large cities
(Calgary, Edmonton, Vancouver), Canada’s oil patch (in Alberta), the Rocky mountains,
together with some sparsely populated agricultural land (Saskatchewan and parts of
Alberta).

In the 1970s the effects of population size, graduates, and diversity on growth do not
differ across Canada (Table 6). However, in the 1980s populous regions grow more slowly
in the East, whereas in the 1990s they grow faster in the West. The presence of graduates
is associated with faster growth in Eastern Canada in the 1980s and in both Eastern
and mid-Western regions in the 1990s: in Canada’s most urbanised areas—notably the
 SPACE, TIME, AND LOCAL EMPLOYMENT GROWTH 715

Quebec-Toronto corridor—there is little association between the local presence of gradu-

ates and growth. Only in the late 1980s, and only in Eastern Canada and in the Toronto-
Quebec corridor, is diversity associated with growth (or, conversely, specialisation is
associated with decline).
There is a tendency for growth to be associated with high salaries in the West and
Northern Ontario (Figure 2) in the 1970s; there is, however, no evidence of the “knowledge
economy”/“traditional resource economy” (“high wage, high growth“/“high wage, low
growth”) dichotomy that we see in the 1990s. During the 1980s higher salaries are
uniformly associated with slower growth.
In the 1970s distance from the U.S. border is positively associated with growth in the
Prairies (Manitoba to Alberta) and in Northern Quebec and Newfoundland, corresponding
to the fast growth in Northern resource industries. This trend almost disappears by the
1990s.
Finally, in the 1970s employment growth is higher the further one moves west, except
around Toronto where there is some evidence that as one moves west from Toronto (over a
limited distance) growth declines. In the 1980s the pattern remains similar, with slowing
growth stretching a little further westward from Toronto. By the 1990s Alberta emerges
as a second focus of growth (growth increases as one approaches Alberta from the west
and decreases east of it). Over this latter period Toronto remains a growth pole (growth
increases as one gets closer to Toronto from the east and declines as one moves to its west).

Discussion and Conclusion

GWR and its limitations. The principal purpose of this paper is to answer a simple
question: does the same growth model apply across all of Canada? To answer this question
requires the use of spatial regression techniques, and an ancillary aim of the paper has
therefore been to present some of the broad concepts that underlie these techniques in order
for the best choice to be made between the different approaches.
GWR is an appropriate statistical method to answer the specific research question.
Alternative spatial regression techniques do not permit the investigation of spatial non-
stationarity. This does not mean, however, that GWR is problem free or that it is ideally
suited to the type of data we have analysed. Our study has two key limitations. First, the size
and shape of the spatial units differ greatly across space; in particular, spatial units are far
larger in the Western and Northern parts of Canada than in the Southern and Eastern parts.
Thus, the scale at which we observe spatial non-stationarity differs across Canada. Some of
the local variability observed in Eastern Canada may simply be occurring within spatial
units in Western Canada. Conversely, wide-scale variations are missed in Eastern Canada.
Second, and partly connected to this first problem, the GWR bandwidth is identified by
seeking the optimum number of closest neighbours: in doing so, and given the relatively
small number of observations in our database (358), it is found that the optimum in
1991–2001 was only ninety-seven. Thus, our model, which has eleven explanatory vari-
ables, has too few degrees of freedom over the 1990s to provide robust local estimates.
716 GROWTH AND CHANGE, DECEMBER 2007

GWR also has some inherent limitations (irrespective of the data used), in particular
the fact that each local model does not take into account local spatial dependence that may
bias local estimates. An ideal technique, one that estimates local auto-regressive
models—has yet to be made widely available. Other problems, such as the treatment of
outliers, heteroskedasticity, and multicollinearity—each of which should be tested for each
local model—also limit the scope of the technique to produce unbiased local estimates (Le
Sage 2004; Wheeler and Tiefelsdorf 2005).
Notwithstanding these limitations, GWR is a useful exploratory tool: given the initial
research question, the GWR technique enables a first tentative answer to be given. Overall,
our conclusion is that spatial non-stationarity has increased over time in Canada, but that
even in the 1990s it only concerns a fairly small number of growth factors. The technique
has also served to highlight a theoretically important hypothesis concerning the different
relationship that high salaries have with growth depending on whether one is in a metro-
politan or a peripheral context.
The technique has also shown that in the 1970s and 1980s there is relatively little spatial
non-stationarity, suggesting that the global auto-regressive technique is appropriate for
testing our model over these two periods. In the 1990s certain key variables behave
differently in different parts of Canada: the spatial stationarity hypothesis that currently
underpins the auto-regressive techniques is thus not verified for this period.

Empirical Results and Regional Development Policy

Our results suggest that a single growth model does not apply in the same way across
space or across time. A series of factors closely associated with employment growth during
the 1980s (population, percentage of graduates, industrial diversity) are not associated with
growth in the 1970s and 1990s. Some factors—such as salary levels in the 1990s—are
associated with employment growth in some parts of the country, with decline in others,
and are unconnected with growth elsewhere.
These results are not merely of academic interest. They provide policy-relevant infor-
mation. A key result that bears directly on policy (albeit a tentative one because of the
lack of robustness of the 1991–2001 models) pertains to the effect of salaries on growth.
Around Canada’s largest metropolitan areas, growth occurs where salaries are the highest:
such increasing returns are as expected in areas where agglomeration economies drive
up productivity. By contrast, in regions dependent upon traditional resource sectors, high
salaries are associated with slower employment growth: this result is commensurate with
cost-minimising behaviour posited in classical economics and with Polèse and Shearmur’s
(2006) field observations of the stifling effect that large high-salary employers have on
Canada’s small towns and regions. These two diametrically opposite relationships are
contemporaneous, and both are compatible with theory: it is just that different theory
applies to different types of region. Despite the exploratory nature of the statistical results
themselves, the fact that they are commensurate with a theoretical understanding of the
processes at work and with other research results lends them external validity.
 SPACE, TIME, AND LOCAL EMPLOYMENT GROWTH 717

On the whole, though, the results do not show large changes over time in the spatial
variability of growth factors. Notwithstanding the changes noted (e.g., the rise of Alberta
as a focus for growth in the West) the principal finding is that until the 1990s, there was
relatively modest spatial non-stationarity in growth models: spatial variation, recorded in
Table 5, is principally in the relationships’ intensity, not their direction. Thus, for the 1970s
and 1980s, an auto-regressive model is an appropriate method for analysing these
data—but this statement can only be made because we have tested for spatial non-
stationarity. The auto-regressive and GWR methods, even used separately as they are in this
article, clearly complement each other.
In the 1990s, there are far greater spatial differences in the effect of growth factors. Over
this period, the global model has the highest explanatory power: its power also increases the
most when regression coefficients are allowed to vary spatially. The local dynamics of
employment growth seem to be becoming increasingly differentiated across Canada: over
time, space has become more important, and we attribute this, at least in part, to the
growing regionalisation of Canada’s economy as changing trade patterns under NAFTA
take effect.
These results cast doubt on the possibility of devising any single regional policy
approach that is valid over different time periods and different areas. In policy circles a
variety of approaches to regional employment growth have fallen in and out of fashion over
time (e.g., regional subsidies, growth poles, small and medium-sized enterprises, science
parks, clusters, diversification, local innovation systems, attracting “talent’), and all have,
at one time or another, been seized upon as key approaches to regional development.
Almost invariably there are well-reported cases of success, and invariably there are cases
where such policies fail. These successes and failures appear, at least in part, to be
attributable to timing and to local context. A general theory of regional growth that can
guide policy makers will, in all likelihood, remain elusive; however, detailed investigation
of the effect of context on particular regional growth models is an exciting and rich avenue
with which policy-relevant research can engage.

APPENDIX THE 18 SECTORS, LOCATION QUOTIENTS, AND THE SPECIALISATION INDEX.

Sector name Brief description

Traditional manufacturing First and second transformation industries and

and utilities public utilitiesa
Medium value-added Other manufacturing industries
manufacturing
High-tech manufacturing Aeronautics, telecommunications equipment,
pharmaceuticals, professional equipment,
business machines
718 GROWTH AND CHANGE, DECEMBER 2007

APPENDIX (CONTINUED)

Sector name Brief description

Construction
Transport
Communication Telecommunication, postal, and courier
services
Wholesale
Retail
Personal services and other Personal services, temporary work, security
Hotels and restaurants
Leisure Cinema (production and projection), theatre,
entertainment facilities, other shows
Finance, insurance, and
real estate
High-tech producer services Computer services, management consulting,
architectural, and engineering consultants
Professional producer services Legal, accounting, marketing services
Education
Health and social services
Public administration Federal, provincial, and local government
employees

a
Utilities (a small sector in terms of numbers) is placed with traditional manufac-
turing because in many Canadian regions hydro-electric or gas production and
distribution play a very similar role to a first transformation manufacturing sector. In
order to keep the number of sectors low and to avoid singling out a small sector,
this choice has been made.
Full SIC and NAICS definitions are available upon request.
Location quotients: employment data for each sector have been converted into
location quotients for the purpose of principal components analysis and in order to
calculate the specialisation index. For a region r, the location quotient of sector i
(lqi) is one hundred times the ratio between:
- the percentage of the region’s employment in the sector; and
- the percentage of Canada’s employment in the sector.
If a sector is identically represented in region r and in Canada, then lqi = 100.
Specialisation index: the specialisation index for region r, Ir, is calculated as
follows (ei is employment in sector i in region r):
⎛ ⎞
1
I r = ln ⎜ ∑ (ei (lqi − 100))2 ⎟
⎜ ∑ ei i =1to18 ⎟
⎝ i=1to18 ⎠
 SPACE, TIME, AND LOCAL EMPLOYMENT GROWTH 719

NOTES
1. Fotheringham, Brundson, and Charlton (2000, pp. 1–14) discuss this issue more generally in the
context of quantitative geography.
2. Straightforward software that implements spatial regression techniques is available over the
Internet (GWR: http://ncg.nuim.ie/ncg/GWR/software.htm; Geoda: http://www.csiss.org/
clearinghouse/GeoDa/). However, the methods implemented in these packages are subject to
constant debate and refinements.
3. The matrix in effect specifies over what distance, and with what strength, independent variables
have an effect. Similarly, it specifies over what distance, and with what strength, the dependent
variable diffuses. The distance functions can be based upon continuous space or contiguity
rules.
4. This argument holds for all types of correlation: correlation is not causation, and in the case of
spatial analysis, spatial autocorrelation is not necessarily spatial dependence.
5. Distance can be defined in units of length or as k closest neighbours. The two parameters
combined define the spatial interaction function, which is discontinuous at the limit of the
bandwidth, beyond which all weights are set to zero.
6. “Everything is related to everything else, but near things are more related than distant things”
(Tobler 1970).
7. We measure distance from the unit’s centroid—we do not have the information to relocate this
centroid to the centre of gravity of employment within each spatial unit.
8. GWR 2.0.5 software is used (see Fotheringham, Brundson, and Charlton 2000). The latest version
of the package is available at http://ncg.nuim.ie/ncg/GWR/software.htm. Geoda095i is used for
the auto-regressive model, available at http://www.csiss.org/clearinghouse/GeoDa/ (see Anselin,
Sybari, and Kho 2006).
9. “The cross-validation score is . . . the sum of squared errors between the observed values and the
values predicted by the model at different points in space . . . The score can thus be seen as an
overall measure of goodness-of-fit . . . Once a value of the kernel bandwidth has been found that
minimises the cross-validation score, this value can be plugged into the geographical weighting
function” (Paez, 2005:164–165).
10. The results for the basic OLS regressions in Table 3 are robust: outlying observations (Cook’s
D > = 0.04) have been removed. No variable has a variance inflation factor above seven, and tests
for heteroskedasticity reveal that it is absent.
11. The R2 of a GWR model corresponds to the percentage of total variance in employment growth
accounted for by the 358 individual local models. Each local model estimates employment growth
in its own region, and does so better than the global OLS model if there is indeed spatial variation
in the relationships under study. It is important to adjust the R2 because estimates are less robust
in cases where fewer closest neighbours have been retained.
12. The R2 are not strictly comparable because the population is not identical for the two models: six
outliers have been removed from the OLS model.
13. We have mapped out the significance levels and signs of all regression coefficients for all three
periods. However, for reasons of space the only results that we present are for the salary variable:
other results are described in the text, but maps are available upon request.
14. Results are summarised in Table 6 for each of the three decades.
720 GROWTH AND CHANGE, DECEMBER 2007

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