Relative Convergence of the Index of Economic Freedom in Canada

This paper analyses the hypothesis of relative convergence of the index of economic freedom at the provincial level in Canada during the period 1981–2021. To this end, it employs the methodology proposed by Phillips and Sul (2007, 2009), which allows for the evaluation of convergence by considering both the idiosyncratic and common heterogeneity of variables over time through a nonlinear transition factor model. This approach does not require assumptions about the stochastic or cointegration properties of the variable, making it particularly suitable for studies of economic convergence. The results show that most provinces form a large convergent group, while Quebec follows a divergent trajectory. This finding indicates the presence of multiple stationary states in regional economic freedom and underscores the relevance of structural and institutional factors in the dynamics of convergence. The identification of a non-convergent group has important implications for the formulation of public policies aimed at harmonizing institutional quality and promoting balanced economic growth across the country.