11.3 Provincial and territorial estimation methods and sources

11.123 Inter-provincial trade flows measure the annual sales of goods and services among Canada's provinces and territories while international trade by province reflects annual sales between individual provinces/territories and the rest of the world.1

11.124 Estimating inter-provincial and international trade flows consists of determining the origin and destination of goods within and outside Canada. The point of origin represents the location where the goods and services are produced or withdrawn from inventory, while destination represents the place where the goods and services are sold or entered into inventory.

11.125 Inter-provincial and international flows of goods and services are determined through a process of balancing the supply and demand for goods and services by province. Thus, for each province or territory and for each product (whether a good or service), domestic demand must equal imports from the rest of the world (international trade), from other provinces (inter-provincial trade) and production (including changes in inventory) in the same province. There is an additional constraint in the case of international trade, where the sum of the provinces is benchmarked to the national totals published by the Income and Expenditure Accounts Division (IEAD).2

11.126 This balancing of supply and demand by province is done in the framework of the provincial and territorial Input-Output Tables produced by the Industry Accounts Division (IAD). These tables summarize production, final demand and the estimate of trade flows, both international and inter-provincial. The estimates are produced by Industry Accounts Division in current dollars only, for benchmark and non-benchmark years. Benchmark year data are fully balanced and are part of the published Input-Output Tables, while the estimates for the non-benchmark years are derived from models developed by the Industry Accounts Division and integrated into the IEA.

11.127 International trade by the provinces is valued at market prices3 as required by the Balance of Payment concepts. For international exports, trade margins and transportation margins are redistributed among the goods. Inter-provincial trade, however, is not tied to the Balance of Payments concept and is calculated at the producer's price rather than at market prices.

11.128 The International Trade Division (ITD) and the Balance of Payments Division (BPD), which are data sources of international trade at the national level, are considered important sources of data for the Input-Output system, but not as suppliers of final estimates, as is the case in the national system. Although essential, the data recorded by the International Trade Division and the Balance of Payments Division are not sufficient in a provincial framework because they do not allow for a strong regional breakout of flows. This inadequacy is especially apparent with international imports of goods, where customs data refer to the province of entry and not the province of final use. In the case of exports of goods, customs data do not always distinguish between the plant and the wholesaler or retailer, which distorts the data on product origin.4 On the services side, the Balance of Payments Division only produces estimates at the national level and no provincial data are available.

11.129 There are also significant differences between the quarterly national and annual provincial systems. The most obvious one relates to classification: since the input-output classification is different from that used by the Balance of Payments Division at the national level, it is difficult to match products between the provincial and national systems. This difference in classification is exacerbated during the deflation process where the chain Fisher indexes are calculated from different levels of detail on different aggregates. A second difference exists in the definition of certain services, such as travel services. At the national level, travel services include the purchase of goods by foreign tourists in Canada or the reverse, by Canadians abroad. For input-output purposes, these goods are placed in their corresponding categories.5 These two fundamental differences of classification and definition of goods and services mean that the goods and services totals of the provincial and national systems do not match, that is, the sum of the goods of the provinces does not equal the Canadian total published in the national system, and the same applies to services.

Presentation of provincial and territorial estimates

11.130 As mentioned, international provincial and inter-provincial trade data are calculated by the Industry Accounts Division, which uses its own system of goods classification for its calculations. The level of work of the Income and Expenditure Accounts Division (for deflation, in particular) and the presentation framework of the data are therefore substantially influenced by the Industry Accounts Division classification.

11.131 The Industry Accounts Division uses a classification consisting of 679 goods and services for both international and inter-provincial trade. These 679 goods and services are remitted as is, in current dollars, to the Income and Expenditure Accounts Division. The Income and Expenditure Accounts Division uses the 679 groups as a working level, from which a first edit of the most important groups in terms of nominal value and an initial deflation is made. These 679 goods and services are then aggregated into 57 groups that serve as the basis for calculating the chain Fisher volume indexes. These groups have no direct link to the 64 export groups and 63 import groups used on a national basis.

11.132 The Provincial Economic Accounts presents the totals for international and inter-provincial trade, as shown in Table 11.9.

Table 11.9 International and interprovincial trade in goods and services in the Provincial Economic Accounts, 2000. Opens in a new browser window.

Table 11.9
International and interprovincial trade in goods and services in the Provincial Economic Accounts, 2000

Estimation methodology – International and interprovincial trade

Sources - International trade

11.133 There is no single source for measuring inter-provincial and international trade flows by province. The principal sources of information used by the Industry Accounts Division are:

  • Merchandise Trade of Canada;
  • Annual Survey of Manufactures and Logging ;
  • The Wholesale Trade Commodity Survey by Origin and Destination;
  • The destination of sales from the Survey of Services Industries; and
  • Out-of-province expenditures from the Travel Survey of Residents of Canada.

11.134 These data sources have different and varied shortcomings in terms of coverage, frequency, valuation and consistency and may not accord entirely with the desired concepts and definitions of accurate measurement of provincial trade flows. Given the limitations of the survey or administrative information, inter-provincial and international trade flows are developed through a blended approach of, on one hand, survey or administrative data providing essential information on provincial trade patterns and on the other hand, an economic structural accounting framework in which the trade patterns are transformed into trade flow measures consistent with provincial supply (mainly production) and demand statistics. The provincial Input-Output Tables (IOT) are the basis of the accounting framework since the Input-Output Tables are the most detailed economic accounting framework available.

11.135 Each of the data sources provide some information on provincial trade flows. For international trade in goods, the Canadian International Merchandise Trade (catalogue no. 65-001) has a provincial dimension. Merchandise trade is said to be by province of origin for the export estimates and by province of customs clearance for imports. For export data, the province of origin corresponds to the requirement of the trade flows program. But since the export estimates to U.S. are based on U.S. import data from Canada, the province of origin for the bulk of our exports is in effect the last point of direct shipment to the U.S. The province of origin data from customs documentation is therefore not a reliable source for provincially allocating international exports. For this reason, trade in grains is corrected using Canadian Grain Commission information, energy commodities are provided by the Manufacturing, Construction and Energy Division (MCED). Census of Mines is put to contribution to validate international merchandise exports of mining commodities. Finally, the Annual Survey of Manufactures and Logging and the Wholesale Trade Commodity Survey by Origin and Destination provide key information about the origin of international exports.

11.136 For international imports, the data from the Canadian International Merchandise Trade are by province of customs clearance which is not consistent with the province of destination (consumption) concept required by inter-provincial and international trade flows program. Again, the Wholesale Trade Commodity Survey by Origin and Destination and survey data which provides information on demand by province is used to reallocate international imports to the proper destination.

11.137 The Canadian Balance of Payments form the basis of the international trade in services measure in the Canadian System of National Accounts. However, they are not produced by province or territory as is required by the provincial trade flows program. Since survey data is generally unavailable at the provincial or territorial level, the national data are allocated according to the province or territory in which the activity is estimated to take place. A wide range of distributors are used such as:

  • Wages by province to allocate many of the commercial services;
  • Number of international students by host province to apportion education-related travel;
  • Cargo tonnage of foreign carriers by province to distribute freight payments; and
  • Number of foreign representatives by province to allocate foreign government spending in Canada.

11.138 The latest provincial allocation of BOP national estimates are for reference year 1996 and are used as a starting point for international trade in services by province for all years since that time. Additional and more current sources are used to complement specific services in international trade. They are:

  • Annual surveys of the business services industries occasionally include a question on the geographic residence of clients;
  • Various annual transport surveys provide rail/truck/marine origin and destination transport data which are used in the derivation of both international transport imports and exports;
  • The International Travel Survey is the basis for provincial allocation of specific travel-related commodities in deriving both international imports and exports; and
  • Wholesale Trade Commodity Surveys by Origin and Destination provides a pattern to provincialize the wholesale margins for both international imports and exports. The latest results are for reference years 1998 and 2001.

Sources – Inter-provincial trade

11.139 The Industry Accounts Division (IAD) obtains measures of inter-provincial trade either by asking producers where goods and services are sold or by asking buyers where goods and services originated from. In general, inter-provincial trade in goods is based on the producers information, while retail, wholesale and travel related expenditures is based on buyers information. For many other commodities, mainly services, only very proxy information is available to estimate trade patterns. In those cases the use of the IO framework fills the data gap. Table 11.10 presents the methods used by Industry Accounts Division for three groups of goods and four groups of services.

Table 11.10 Summary of interprovincial trade flows methods and sources. Opens in a new browser window.

Table 11.10
Summary of interprovincial trade flows methods and sources

11.140 International trade by province and inter-provincial trade flows estimates for the non-benchmark years do not benefit from the full provincial Input-Output Tables (IOT). In other words, the supply/demand constraints of the accounting framework are not available.

11.141 With the objective of having a current set of supply and demand constraints, the Industry Accounts Division produces synthetic or projected provincial Input-Output Tables based on data available in the current period. Those synthetic tables are, in essence, a projection of the most recent benchmarked provincial Input-Output Tables and its associated trade matrix, using the following limited but current information:

  • internally-produced current price provincial gross outputs from the provincial gross domestic product (GDP) by industry program;
  • major components of the provincial expenditure-based gross domestic product from the Provincial Economic Accounts;
  • industrial and provincial distributions of the private and public investment;
  • international merchandise trade by province;
  • national balance of payments estimates and their breakdown;
  • trade flows for agricultural and energy commodities (from Statistics Canada surveys);
  • miscellaneous heterogeneous information such as provincial employment and wages by industry;
  • economic intelligence gathered through press releases and provincial governments; and
  • final domestic demand estimates.

Deflation of regional estimates

11.142 The Income and Expenditure Accounts Division (IEAD) deflates inter-provincial and international trade flow series at the detailed level of 679 products. As a general rule, for a given product, the same price will be applied in all provinces, by trade flow. Province specific prices may be used where province specific price or volume data is available.

11.143 Series are deflated at the most detailed level, then aggregated to the S level (57 groups). Implicit prices used in calculating the chain Fisher index are then deduced from the 57 groups in current and constant dollars. A chain Fisher index is calculated for the totals of exports and imports, and for totals of flows to other provinces (inter-provincial trade) and to other countries (international trade).6 Fisher indexes are also calculated for goods and services of these flows.

11.144 Deflation of the series at the most detailed level uses prices from several sources. The various sources used for international trade and for flows in inter-provincial products are summarized in Table 11.11. For flows of inter-provincial products, there is no differentiation in export and import prices by product because the flow of exports from one province is the flow of imports to another.

11.145 International exports of goods are generally deflated by prices provided by the International Trade Division. They provide IEAD with a set of detailed prices (a more detail level than the major groups) to facilitate their incorporation into the provincial system.7 As in the national deflation, for exports, these prices are mainly derived from price indexes of domestic industrial products, produced by the Prices Division, and, to a lesser degree, from unit values derived from customs data and price indexes of industrial export products. For some commodities, the implicit prices of the major groups of the national system are also used for international exports of provinces. This is the case, in particular, for exports of automobiles, petroleum products and natural gas.

11.146 International exports of services are mainly deflated by prices from the national system, where weekly average earnings and Industrial Product Price Indexes (IPPI), personal expenditure prices and CPIs largely serve as the basis for calculating price indexes.

11.147 The Income and Expenditure Accounts Division (IEAD) sometimes receives province or commodities specific information that can be taken into account and used to adjust some prices.

11.148 For international imports, most of the prices are again derived from International Trade Division's deflation system, which provides Income and Expenditure Accounts Division with a set of price indexes at a more detailed level than that of the major groups. About two-thirds of these price indexes are constructed from the producer price indexes of the U.S. Bureau of Labor Statistics multiplied by the exchange rate; another portion is drawn from the unit values of customs documents. Deflation of international imports also relies, to a large extent, on the implicit prices of the national system, especially for services.

11.149 For inter-provincial trade, prices from domestic producers are used for most goods, although a substantial part of the deflation is based on the prices used to deflate international exports. Services are deflated using the same prices as international service exports, that is, that average weekly earnings and IPPIs generally serve as the basis for the price indexes.

Table 11.11 Prices sources for provincial and territorial trade. Opens in a new browser window.

Table 11.11
Prices sources for provincial and territorial trade

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Notes

1. For more information, see The Derivation of Provincial (Inter-regional) Trade Flows : The Canadian Experience, prepared for presentation at the 14th International Input-Output Techniques Conference, October 10 to 15, 2002, Montreal, 48 pp.

2. The accounting identities are described in greater detail in Appendix 11D: Balancing of provincial trade flows.

3. These are often referred to as purchaser prices.

4. On the international exports side, the exporting province is recorded as the province of origin. There are, however, a number of problems: wholesalers and retailers are often confused with the producer; storage facilities and the routes used by carriers can create errors (for example, iron from Labrador assigned to Quebec); international sales are sometimes managed by agents (for example, uranium from Saskatchewan sold by an Ontario agent); the province of origin not recorded in customs documents; exports to the United States come from U.S. import customs documents, which are less accurate in terms of origin; the coding can contain errors. For international imports, the documents record only the province at which the goods cleared customs and not the final destination.

5. Travel services, commercial services, transportation services and government services are re-classified when they are moved into the Input-Output balancing system.

6. This index is subsequently benchmarked on current dollar values of a reference year, as is the case in the national system.

7. The provincial system has 679 products while the national has 64. International Trade Division is able to provide Income and Expenditure Accounts Division with a lower level of detail than the major groups of the national system, which allows for some refinement of provincial deflation. These prices are also used as the basis for deflation of the national system.