What drives employment growth of Canadian Businesses? A Fresh Look at Indicators of Agglomeration Economies when Competition and Diversity Matter

This study investigates indicators of external scale economies in Canada for the period 2004-11. Accounting for firm-level external scale forces, we explore the extent to which external scale economies impact employment growth. Our analysis focuses on three factors: the impact of external scale economies accounting for Marshallian specialization and Jacobs diversity, competition by industry, and related and unrelated firm varieties in terms of employment and sales. Results accounting for non-linearity between employment growth and agglomeration suggest that in the short run, during the period 2004-2011, local competition and diversity in Canada have had a positive impact on employment growth, while the effect of Marshallian specialization is negative; during the period of the global financial crisis and immediately thereafter (2008-2011) however, the magnitude of the positive effect of competition and diversity is lower, while the negative effect of specialization on employment growth is also smaller and rather insignificant. In the long run, a peak threshold for specialization and diversity is found, while a lower bound threshold for competition can be identified. Moreover, diversity is found an insignificant employment growth determinant in the agricultural sector, while concentration contributes insignificantly to employment growth in the industry sector.