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Trade liberalization and productivity dynamics: evidence from Canada

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  • Alla Lileeva

Abstract

The paper investigates the productivity effects of the Canada-U.S. Free Trade Agreement on Canadian manufacturing. It finds that Canadian tariff cuts increased exit rates among moderately productive non-exporting plants. This led to the reallocation of market share towards highly productive plants, which explains the aggregate productivity gains observed when Canadian tariffs were reduced. The U.S. tariff cuts led to the within-plant productivity gains in exporters and, especially, new entrants into the export market. Any lack of output responses and labour-shedding as a consequence of the FTA was experienced by non-exporting plants, while exporters captured the gains from the FTA.

Suggested Citation

  • Alla Lileeva, 2008. "Trade liberalization and productivity dynamics: evidence from Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 41(2), pages 360-390, May.
  • Handle: RePEc:cje:issued:v:41:y:2008:i:2:p:360-390
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    Cited by:

    1. Arnold, Jens M. & Javorcik, Beata S. & Mattoo, Aaditya, 2011. "Does services liberalization benefit manufacturing firms?: Evidence from the Czech Republic," Journal of International Economics, Elsevier, vol. 85(1), pages 136-146, September.
    2. Stephen S. Poloz, 2016. "The Paul Storer Memorial Lecture—Cross-Border Trade Integration and Monetary Policy," Discussion Papers 16-20, Bank of Canada.
    3. Moritz Ritter, 2015. "Trade and inequality in a directed search model with firm and worker heterogeneity," Canadian Journal of Economics, Canadian Economics Association, vol. 48(5), pages 1902-1916, December.
    4. David L. Rigby & Thomas Kemeny & Abigail Cooke, 2017. "Plant exit and U.S. imports from low-wage countries," International Economics, CEPII research center, issue 149, pages 27-40.
    5. Paul S. Segerstrom & Yoichi Sugita, 2015. "The Impact Of Trade Liberalization On Industrial Productivity," Journal of the European Economic Association, European Economic Association, vol. 13(6), pages 1167-1179, December.
    6. Rubini, Loris, 2014. "Innovation and the trade elasticity," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 32-46.
    7. Don Drummond & Annette Ryan & Michael R. Veall, 2013. "Improving Canada's Productivity Performance: The Potential Contribution of Firm-level Productivity Research," International Productivity Monitor, Centre for the Study of Living Standards, vol. 26, pages 86-93, Fall.
    8. Christian Rutzer, 2014. "A Theory of Trade Liberalization and Innovations with Heterogeneous Firms," Working papers 2014/02, Faculty of Business and Economics - University of Basel.
    9. Baldwin, John R. & Lileeva, Alla, 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.
    10. Hiro Lee & Ken Itakura, 2017. "The Welfare and Sectoral Adjustment Effects of Mega-Regional Trade Agreements on ASEAN Countries," OSIPP Discussion Paper 17E006, Osaka School of International Public Policy, Osaka University.
    11. Chang-Tai Hsieh & Nicholas Li & Ralph Ossa & Mu-Jeung Yang, 2016. "Accounting for the New Gains from Trade Liberalization," Working Papers 16-14, Center for Economic Studies, U.S. Census Bureau.
    12. Ederington, Josh & McCalman, Phillip, 2008. "Endogenous firm heterogeneity and the dynamics of trade liberalization," Journal of International Economics, Elsevier, vol. 74(2), pages 422-440, March.
    13. Baldwin, John R. & Lileeva, Alla, 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.
    14. Movahedi, Mohammad, 2013. "Le commerce international, l’adoption de l’innovation et le choix de l’entrée-sortie à l’exportation des firmes
      [International trade, innovation adoption and export entry-exit choice of the firms]
      ," MPRA Paper 44268, University Library of Munich, Germany, revised 01 Jan 2014.
    15. 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;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 147(1), pages 131-167, April.
    16. Hiro Lee & Ken Itakura, 2015. "Applied General Equilibrium Analysis of Mega-Regional Free Trade Initiatives in the Asia-Pacific," OSIPP Discussion Paper 15E001, Osaka School of International Public Policy, Osaka University.

    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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