Productivity and Trade Liberalizations in Canada

I study the evolution of productivity in Canada relative to the United States during two trade liberalization episodes: the 1965 Auto Pact and the 1989 Free Trade Agreement. I find that Canada´s productivity grew more than U.S. productivity in the liberalized sector, which is consistent with the idea that openness increases productivity. This study reveals new evidence of productivity during the Auto Pact. Regarding the Free Trade Agreement, existing studies find that manufacturing productivity grew less in Canada than in the United States following the agreement. I argue that this is due to the use of prices that are not comparable across countries. Once these prices are made comparable, my findings are that manufacturing productivity grew more in Canada than in the U.S. The results of this study suggest there are productivity gains associated with trade liberalization, and models of international trade should account for them.