| Summary: | This thesis examines various issues related to intranational and international trade, fiscal decentralization, trade openness, economic diversity, resource curse and economic growth – all within a Canada-US sub-national framework. Chapter 1 provides the motivation for the study and sets the stage for the various empirical-based policy trade-offs and insights arrived at in the subsequent chapters. In chapter 2, we examine the extent to which trade costs, modeled by distance and contiguity, influence the magnitude and direction of both east-west and north-south trade in Canada and the US .We provide an alternative framework which pays special attention to estimation issues related to unobserved heterogeneity, log-linearization in the presence of heteroscedasticity, and logarithmic transformation of zero bilateral trade flows. In all, this thesis provides updated results and garners further evidence in support of the home bias argument of McCallum (1995) and Obstfeld and Rogoff (2000b). Equally, our results uphold the Linder-hypothesis, but refute the Heckscher-Ohlin factor endowment proposition. Chapter 3 focuses on the relative importance of fiscal redistribution and trade openness in the economic growth analysis of Canada and the US. Using a dynamic panel of Canada-US data, we estimate the importance of redistributive flows based on personal income after federal taxes and transfers, and pretax personal income. We conclude that there is a clear incidence of “immiserising growth”. The coefficient of the interaction variable gives no evidence of fiscal transfer-induced growth across all four major estimators. Chapter 4 explores the diversity-resource-growth nexus. The first major conclusion is that the diversity measures employed are arbitrary because both the absolute and relative specialization measures, on which they are based, are arbitrary. We find evidence for a positive direct relationship for the diversity-growth nexus. Due to statistically insignificant coefficients, the GMM framework does not provide us with predictive power to test the resource curse proposition. However, through the fixed effects technique, we provide evidence for the role of economic diversity as a transmission channel of the resource curse.
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