Issue 18-76 Measuring Diversification in British Columbia
April 26, 2018
The purpose of this report is to provide a quantitative measure of diversification in different aspects of the B.C. economy, in order to highlight potential areas of interest, as well as strength and risk in the economy for policy makers.
A common measure of diversification known as the Herfindahl-Hirschman Index (HHI) was used to provide an objective measure of diversification in the industrial composition of Gross Domestic Product (GDP), employment and exports for British Columbia and the rest of the provinces. The report uses the HHI range employed by Statistics Canada and the US Department of Justice and the US Federal Trade Commission to categorize results as diversified, moderately concentrated and highly concentrated.
All provincial economies were considered diversified in 2016 when using the industrial composition of Gross Domestic Product (GDP). Likewise, employment by industry is diversified across all provinces, as well as across British Columbia’s development regions.
Exports on the other hand, tend to be more concentrated. Statistics Canada reports a provincial measure of export concentration by product. In 2016, British Columbia had highly diversified exports by product, ranking third among provinces.
Exports by destination are highly concentrated in all provinces. Nevertheless, in 2017, British Columbia had the second highest diversification by exports’ destination among provinces, marginally behind Newfoundland and Labrador.
Important aspects of the economy were analyzed to measure economic diversification in British Columbia. The results place B.C. in a very favourable position among provinces, with diversified production (as measured by industrial GDP), employment by industry, and products exported. Even though British Columbia merchandise exports are highly concentrated by destination, among provinces and territories, B.C. is near the top in terms of market diversification.