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Death of Canadian Manufacturing Plants: Heterogeneous Responses to Changes in Tariffs and Real Exchange Rates

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  • Baldwin, John R.
  • Yan, Beiling

Abstract

We examine the simultaneous effects of real-exchange-rate movements and of tariff reductions on plant death in Canadian manufacturing industries between 1979 and 1996. We find that both currency appreciation and tariff cuts increase the probability of plant death, but that tariff reductions have a much greater effect. Consistent with the implications of recent international-trade models involving heterogeneous firms, we further find that the effect of exchange-rate movements and tariff cuts on exit are heterogeneous across plants - particularly pronounced among least efficient plants. Our results reveal multi-dimensional heterogeneity that current models featuring one-dimensional heterogeneity (efficiency differences among plants) cannot fully explain. There are significant and substantial differences between exporters and non-exporters, and between domestic- and foreign- controlled plants. Exporters and foreign-owned plants have much lower failure rates; however, their survival is more sensitive to changes in tariffs and real exchange rates, whether differences in their efficiency levels are controlled or not.

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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 2010061e.

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Date of creation: 14 Apr 2010
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Handle: RePEc:stc:stcp5e:2010061e

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Related research

Keywords: Business adaptation and adjustment; Business performance and ownership; Entry; exit; mergers and growth; Manufacturing;

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Cited by:
  1. Norback, Pehr-Johan & Tekin-Koru, Ayca & Waldkirch, Andreas, 2013. "Multinational Firms and Plant Divestiture," MPRA Paper 45957, University Library of Munich, Germany.

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