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Productivity and Trade Liberalizations in Canada

Author

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  • Loris Rubini

    () (Universidad Catolica de Chile and Universidad Carlos III de Madrid)

Abstract

I study the evolution of productivity in Canada relative to the United States during two trade liberalization episodes: the 1965 Auto Pact and the 1989 Free Trade Agreement. I find that Canada´s productivity grew more than U.S. productivity in the liberalized sector, which is consistent with the idea that openness increases productivity. This study reveals new evidence of productivity during the Auto Pact. Regarding the Free Trade Agreement, existing studies find that manufacturing productivity grew less in Canada than in the United States following the agreement. I argue that this is due to the use of prices that are not comparable across countries. Once these prices are made comparable, my findings are that manufacturing productivity grew more in Canada than in the U.S. The results of this study suggest there are productivity gains associated with trade liberalization, and models of international trade should account for them.

Suggested Citation

  • Loris Rubini, 2015. "Productivity and Trade Liberalizations in Canada," Economics Bulletin, AccessEcon, vol. 35(2), pages 1404-1422.
  • Handle: RePEc:ebl:ecbull:eb-14-00956
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2015/Volume35/EB-15-V35-I2-P141.pdf
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    References listed on IDEAS

    as
    1. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
    2. Timothy J. Kehoe, 2003. "An evaluation of the performance of applied general equilibrium models of the impact of NAFTA," Staff Report 320, Federal Reserve Bank of Minneapolis.
    3. Gueorgui Kambourov, 2009. "Labour Market Regulations and the Sectoral Reallocation of Workers: The Case of Trade Reforms," Review of Economic Studies, Oxford University Press, vol. 76(4), pages 1321-1358.
    4. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
    5. Rubini, Loris, 2014. "Innovation and the trade elasticity," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 32-46.
    6. Melvyn Fuss & Leonard Waverman, 1986. "The Canada-U.S. Auto Pact of 1965: An Experiment in Selective Trade Liberalization," NBER Working Papers 1953, National Bureau of Economic Research, Inc.
    7. Andrew Atkeson & Ariel Tomás Burstein, 2010. "Innovation, Firm Dynamics, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(3), pages 433-484, June.
    8. Alexander McQuoid & Loris Rubini, 2014. "Trade Costs and Markups," Documentos de Trabajo 454, Instituto de Economia. Pontificia Universidad Católica de Chile..
    9. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    10. Ariel Burstein & Javier Cravino, 2015. "Measured Aggregate Gains from International Trade," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(2), pages 181-218, April.
    11. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    12. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Auto Pact; US - Canada Free Trade Agreement; Productivity Gains from Trade.;

    JEL classification:

    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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