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Responses to Trade Liberalization: Changes in Product Diversification in Foreign- and Domestic-controlled Plants

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  • Gu, Wulong
  • Caves, Richard
  • Baldwin, John R.

Abstract

This paper studies the impact that a small country joining a regional trade agreement, but particularly a small country, might be expected to gain from the exploitation of scale economies. It makes use of the experience of Canada when it entered into the Canada-United States Free Trade Agreement (FTA) in the early 1990s. It finds that there was a general increase in the pace of plant commodity specialization around the time of implementation of the Free Trade Agreement. At the time of the treaty, plant diversity was found to be higher in larger plants and in industries with assets that are associated with scope economies. Diversity was also higher in industries that had higher rates of tariff protection. Over the 1980s and 1990s, plant diversity decreased with reductions in both U.S. and Canadian tariffs. And the decline was greater during the post FTA era than before, thereby suggesting that this treaty had an impact above and beyond that just engendered by the tariff reductions that were associated with it. The study also found that foreign-controlled plants tended to adjust more over the entire period.

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Bibliographic Info

Paper provided by Statistics Canada, Analytical Studies Branch in its series Economic Analysis (EA) Research Paper Series with number 2005031e.

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Date of creation: 24 Mar 2005
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Handle: RePEc:stc:stcp5e:2005031e

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Related research

Keywords: Business adaptation and adjustment; Business performance and ownership; International trade; Trade patterns;

This paper has been announced in the following NEP Reports:

References

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  1. Markusen, James R., 1981. "Trade and the gains from trade with imperfect competition," Journal of International Economics, Elsevier, vol. 11(4), pages 531-551, November.
  2. Gollop, Frank M & Monahan, James L, 1991. "A Generalized Index of Diversification: Trends in U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 318-30, May.
  3. Lemelin, Andre, 1982. "Relatedness in the Patterns of Interindustry Diversification," The Review of Economics and Statistics, MIT Press, vol. 64(4), pages 646-57, November.
  4. Beckstead, Desmond & Baldwin, John R. & Caves, Richard, 2002. "Changes in the Diversification of Canadian Manufacturing Firms and Plants (1973-1997): A Move to Specialization," Analytical Studies Branch Research Paper Series 2002179e, Statistics Canada, Analytical Studies Branch.
  5. Gu, Wulong & Baldwin, John R., 2003. "Participation in Export Markets and Productivity Performance in Canadian Manufacturing," Economic Analysis (EA) Research Paper Series 2003011e, Statistics Canada, Analytical Studies Branch.
  6. Harris, Richard, 1984. "Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition," American Economic Review, American Economic Association, vol. 74(5), pages 1016-32, December.
  7. MacDonald, James M, 1985. "R and D and the Directions of Diversification," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 583-90, November.
  8. Andrew B. Bernard & J. Bradford Jensen, 1997. "Exceptional Exporter Performance: Cause, Effect, or Both?," NBER Working Papers 6272, National Bureau of Economic Research, Inc.
  9. Michael Gort, 1962. "Diversification and Integration in American Industry," NBER Books, National Bureau of Economic Research, Inc, number gort62-1, July.
  10. Tang, Jianmin & Baldwin, John R. & Jarmin , Ron S., 2002. "The Trend to Smaller Producers in Manufacturing: A Canada/U.S. Comparison," Economic Analysis (EA) Research Paper Series 2002003e, Statistics Canada, Analytical Studies Branch.
  11. Horstmann, Ignatius J. & Markusen, James R., 1992. "Endogenous market structures in international trade (natura facit saltum)," Journal of International Economics, Elsevier, vol. 32(1-2), pages 109-129, February.
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  13. Head, Keith & Ries, John, 1999. "Rationalization effects of tariff reductions," Journal of International Economics, Elsevier, vol. 47(2), pages 295-320, April.
  14. Baldwin, John R. & Raffiquzzaman, Mohammed, 1995. "Restructuring in the Canadian Manufacturing Sector from 1970 to 1990: Industry and Regional Dimensions of Job Turnover," Analytical Studies Branch Research Paper Series 1995078e, Statistics Canada, Analytical Studies Branch.
  15. Feinberg, Robert M, 1985. ""Sales-at-Risk": A Test of the Mutual Forebearance Theory of Conglomerate Behavior," The Journal of Business, University of Chicago Press, vol. 58(2), pages 225-41, April.
  16. Baldwin, John R. & Harchaoui, Tarek, 2002. "Productivity Growth in Canada," Productivity Growth in Canada, Statistics Canada, Economic Analysis, number stcb6e, December.
  17. Markusen, James R. & Rutherford, Thomas F. & Hunter, Linda, 1995. "Trade liberalization in a multinational-dominated industry," Journal of International Economics, Elsevier, vol. 38(1-2), pages 95-117, February.
  18. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
  19. Rama, Ed & Sabourin, David & Baldwin, John R., 1999. "Growth of Advanced Technology Use in Canadian Manufacturing During the 1990's," Analytical Studies Branch Research Paper Series 1999105e, Statistics Canada, Analytical Studies Branch.
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Citations

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Cited by:
  1. Lileeva, Alla, 2008. "Trade Liberalization and Productivity Dynamics: Evidence from Canada," Economic Analysis (EA) Research Paper Series 2008051e, Statistics Canada, Analytical Studies Branch.
  2. Baldwin, John R. & Gellatly, Guy, 2007. "Global Links: Multinationals in Canada: An Overview of Research at Statistics Canada," The Canadian Economy in Transition 2007014e, Statistics Canada, Economic Analysis.
  3. Gu, Wulong & Baldwin, John R., 2006. "Les repercussions du commerce sur la taille des usines, la duree des cycles de production et la diversification," Serie de documents de recherche sur l'analyse economique (AE) 2006038f, Statistics Canada, Direction des etudes analytiques.
  4. Brown, W. Mark & Gu, Wulong & Baldwin, John R., 2008. "Geographic Market Access and the Effects of Trade on Length of Production Run, Product Diversity and Plant Scale of Canadian Manufacturing Plants, 1974 to 1999," Economic Analysis (EA) Research Paper Series 2008052e, Statistics Canada, Analytical Studies Branch.
  5. Lileeva, Alla & Baldwin, John R., 2008. "Adaptation a la concurrence des importations : effets du commerce avec les pays a bas salaires sur le portefeuille de produits des etablissements manufacturiers canadiens," Serie de documents de recherche sur l'analyse economique (AE) 2008054f, Statistics Canada, Direction des etudes analytiques.
  6. Gu, Wulong & Sawchuk, Gary, 2006. "How Are Canadian Regions Adjusting to a Larger and More Integrated North American Market?," Economic Analysis (EA) Research Paper Series 2006039e, Statistics Canada, Analytical Studies Branch.
  7. Gu, Wulong & Baldwin, John R., 2006. "The Impact of Trade on Plant Scale, Production-Run Length and Diversification," Economic Analysis (EA) Research Paper Series 2006038e, Statistics Canada, Analytical Studies Branch.
  8. Gu, Wulong & Sawchuk, Gary, 2006. "Comment les regions du Canada s'adaptent-elles a un marche nord-americain plus grand et plus integre?," Serie de documents de recherche sur l'analyse economique (AE) 2006039f, Statistics Canada, Direction des etudes analytiques.
  9. Brown, W. Mark & Baldwin, John R., 2005. "Foreign Multinationals and Head Office Employment in Canadian Manufacturing Firms," Economic Analysis (EA) Research Paper Series 2005034e, Statistics Canada, Analytical Studies Branch.
  10. Lileeva, Alla & Baldwin, John R., 2008. "Adapting to Import Competition: Effects of Low-wage Trade on Commodity Mix in Canadian Manufacturing Plants," Economic Analysis (EA) Research Paper Series 2008054e, Statistics Canada, Analytical Studies Branch.
  11. John Baldwin & Beiling Yan, 2011. "The death of Canadian manufacturing plants: heterogeneous responses to changes in tariffs and real exchange rates," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 147(1), pages 131-167, April.

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