ABSTRACT
Using monthly data, this research establishes that Ontario's electricity cost disadvantage versus Quebec has been large, somewhat variable, and causally linked to changes in the ratio of Ontario's manufacturing shipments to Quebec's manufacturing shipments over the 2002-2014 period. For nine of the 21 manufacturing industries analyzed, the ratio of Ontario to Quebec electricity prices Granger-caused the ratio of Ontario to Quebec manufacturing shipments. These nine industries were not randomly distributed across the set of 21 industries. Of the top eight industries when ranked by their electricity intensity of production, five were found to have the electricity price ratio Granger-causing the shipments ratio (NAIC 322, 331, 321, 327, and 326) while only three showed no impact from the electricity price ratio (NAIC 325, 324, 313). For the bottom 13 electricity intensive industries, only four had the electricity price ratio Granger-causing the shipments ratio (NAIC 337, 332, 335, and 333).
The concentration of Granger-causality findings within the more electricity intensive manufacturing industries raises the likelihood that the observed Granger-causality is in fact reflecting a genuine causal impact from electricity prices upon manufacturing shipments in Ontario for these industries. While nine of 21 industries (42.9%) exhibit a causal impact from electricity prices upon manufacturing shipments, the share of Ontario's total manufacturing shipments from these industries is somewhat smaller at 31.1%, primarily because the large Transportation Equipment industry does not show electricity prices Granger-causing shipments.
Keywords
Ontario, electricity costs, manufacturing shipments, causality testing