CANADA DIVIDED: THE OPTIMAL DIVISION OF AN ECONOMY INTO REGIONS

ABSTRACT We develop an objective methodology for forming large regions (called macroregions) from small regions (microregions). We observe that the aggregation of microregions in an interregional input-output model causes aggregation error in the model. Our optimal regions are those that cause aggregation error to be minimized. We apply our methodology to Canada, and we compare our optimal regions for Canada to those of Statistics Canada and to those obtained using the well-known heuristic of Kossov. Statistics Canada's regions as well as those produced using Kossov's technique are characterized by substantially greater aggregation error than are those produced with our methodology.