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Changing Trade Barriers and Canadian Firms: Survival and Exit After the Canada-U.S. Free Trade Agreement

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Author Info
Baggs, Jennifer
Abstract

This paper considers the implications of changing trade barriers on the survival of Canadian manufacturing firms. A segmented market Cournot model was developed to describe the effects of trade liberalization for heterogeneous firms operating in diverse industries. The predictions of this model are tested empirically using firm-level data for both public and private corporations and tariff rates for both Canada and the United States. Our findings suggest that Canadian tariff reductions decreased the probability of the survival of Canadian firms while declines in American tariffs increased the probability. Combining these two effects, firms in two-thirds of Canadian manufacturing industries saw their probability of survival increase as a result of the tariff reductions mandated by the Canada-U.S. Free Trade Agreement. However, the sensitivity of individual firms to tariff changes was mitigated by the characteristics of those firms. In particular, productivity and leverage played substantial roles in determining a firm's vulnerability to failure as a result of trade liberalization.

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File URL: http://www.statcan.gc.ca/bsolc/olc-cel/olc-cel?catno=11F0019M2004205&lang=eng
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Paper provided by Statistics Canada, Analytical Studies Branch in its series Analytical Studies Branch Research Paper Series with number 2004205e.

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Date of creation: 28 Apr 2004
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Handle: RePEc:stc:stcp3e:2004205e

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Related research
Keywords: Business performance and ownership; International trade; Business adaptation and adjustment; Entry; exit; mergers and growth; Trade patterns; Small and medium-sized businesses;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  2. Zvi Griliches & Jacques Mairesse, 1991. "R&D and Productivity Growth: Comparing Japanese and U.S. Manufacturing Firms," NBER Working Papers 1778, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Head, Keith & Ries, John, 1999. "Rationalization effects of tariff reductions," Journal of International Economics, Elsevier, vol. 47(2), pages 295-320, April. [Downloadable!] (restricted)
  5. Cox, David & Harris, Richard, 1985. "Trade Liberalization and Industrial Organization: Some Estimates for Canada," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 115-45, February. [Downloadable!] (restricted)
  6. Zingales, Luigi, 1998. "Survival of the Fittest or the Fattest? Exit and Financing in the Trucking Industry," CEPR Discussion Papers 1778, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Andrew B. Bernard & J. Bradford Jensen, 2001. "Who Dies? International Trade, Market Structure, and Industrial Restructuring," NBER Working Papers 8327, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Daniel Trefler, 2004. "The Long and Short of the Canada-U. S. Free Trade Agreement," American Economic Review, American Economic Association, vol. 94(4), pages 870-895, September. [Downloadable!]
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  9. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February. [Downloadable!] (restricted)
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  10. Luigi Zingales, 1998. "Survival of the Fittest or the Fattest? Exit and Financing in the Trucking Industry," Journal of Finance, American Finance Association, vol. 53(3), pages 905-938, 06. [Downloadable!] (restricted)
  11. John R. Baldwin & Wulong Gu, 2002. "Plant Turnover and Productivity Growth in Canadian Manufacturing," OECD Science, Technology and Industry Working Papers 2002/2, OECD, Directorate for Science, Technology and Industry. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Holger Breinlich, 2006. "Trade Liberalization and Industrial Restructuring through Mergers and Acquisitions," Economics Discussion Papers 619, University of Essex, Department of Economics. [Downloadable!]
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