Geography and the Technique Effect: Evidence from Canada

The technique effect – the reduction in aggregate pollution emissions due to reductions in the pollution intensity of individual industries – is often interpreted as evidence that countries are getting cleaner because of improvements in how goods and services are produced. We extend the standard decomposition used in previous research to show the technique effect may also capture changes in the geography of economic activity. An empirical application to Canada suggests such changes may be economically important. While the technique effect decreased aggregate Canadian pollution intensity by 18.0% between 2009-2021, if the pollution intensity of production had remained fixed, within-industry shifts in production across Canada would have increased aggregate pollution intensity by over 11%. The technique effect decreased Canadian pollution intensity because these within-industry shifts were accompanied by reductions in pollution intensity that were greatest in provinces that received the largest within-industry reallocation of economic activity.