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Protection for maturing industries: Evidence from Canadian trade patterns and trade policy, 18701913

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  • Ian Keay

Abstract

As industries mature, experience is accumulated, productivity increases, trade performance improves on domestic and international markets and learning potential dissipates. Using theory-consistent empirical specifications, I find a strong, robust negative relationship linking tariff rates to trade performance for manufactured products that matured during the first decade after Canada prioritized protectionist policy objectives in 1879. This relationship also holds at a more aggregate industry level, where I can use other measures of maturity, control for import penetration, use historically contemporaneous trade elasticity estimates, link trade performance to trade restrictiveness and effective rates of protection and where I can instrument for import penetration and trade performance using a two-stage IVGMM estimation approach. The results suggest that after 1890 the Canadian government carefully cut tariffs on products produced by maturing Canadian producers and this retreat from protectionism significantly lowered the static deadweight losses resulting from Canadian trade policy during the post-1890 period.

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  • Ian Keay, 2019. "Protection for maturing industries: Evidence from Canadian trade patterns and trade policy, 18701913," Canadian Journal of Economics, Canadian Economics Association, vol. 52(4), pages 1464-1496, November.
  • Handle: RePEc:cje:issued:v:52:y:2019:i:4:p:1464-1496
    DOI: 10.1111/caje.12410
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    Cited by:

    1. Patrick Alexander & Ian Keay, 2018. "Responding to the First Era of Globalization: Canadian Trade Policy, 1870–1913," Staff Working Papers 18-42, Bank of Canada.

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    JEL classification:

    • N71 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - U.S.; Canada: Pre-1913

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