The topic of diversification has been studied extensively by academics and policy makers. The theory of diversification, dating back to the 1930s and the Great Depression, suggests that increasing the variety of industries in a region spreads the risk and reduces the likelihood that all industries will suffer a downturn at the same time. This serves to mitigate the boom and bust pattern often experienced by a heavy reliance on a limited number of industries, which in three of the four western provinces, means natural resource-based industries. This study examines diversification progress in the four western provinces over the last 30 years. The time span covers the greatest progress in trade liberalization policy in the nation’s history, and the evidence is clear that increased trade is an important contributor to economic diversification. Over the past three decades, Canada participated in the Tokyo (1973 to 1979), Uruguay (1986 to 1994) and Doha (beginning in 2001) Rounds of multilateral trade negotiations, and implemented the Free Trade Agreement with the United States in 1989 and the North American Free Trade Agreement in 1994. In addition to participating in international activities, provincial governments took important steps by reducing interprovincial trade barriers with the Agreement on Internal Trade in 1994 and the Alberta-BC Trade, Investment and Labour Mobility Agreement of 2006. The study uses labour force data to examine whether the four western provinces have become more diversified and concludes that Alberta has made the most progress, while acknowledging that Manitoba’s already-diversified economy leaves less potential for further progress in that province. The study also examines the actions taken by federal and provincial governments that contributed to increased diversification. Based on the results of the analysis it is possible to draw five key observations about diversification and how it can be encouraged.


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