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Protection for maturing industries: Evidence from Canadian trade patterns and trade policy, 1870–1913

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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 IV–GMM 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. Protection des industries en phase de maturité : illustration par les modèles commerciaux et les politiques commerciales du Canada entre 1870 et 1913. À mesure que les industries gagnent en maturité, l'expérience s'accumule, la productivité croît, les performances commerciales s'améliorent sur les marchés nationaux et internationaux, et le potentiel d'apprentissage se dissipe. À l'aide de modèles empiriques conformes à cette théorie, j'ai dégagé une relation négative robuste entre les droits tarifaires et les performances commerciales pour les produits manufacturés arrivés à maturité au cours de la première décennie suivant la décision du Canada de prioriser les objectifs de politique protectionniste en 1879. Cette corrélation est également valable à un niveau industriel plus général dans le cadre duquel il est possible d'utiliser d'autres mesures d'évaluation de la maturité, de contrôler la pénétration des importations, d'utiliser des estimations historiquement contemporaines relatives à l'élasticité des échanges, de corréler les performances commerciales aux restrictions des échanges et aux taux de protection effectifs, et où il est également possible de mesurer la pénétration des importations et les performances commerciales grâce à une approche estimative en deux étapes IV‐GMM. Les résultats suggèrent qu'après 1890, le gouvernement canadien a pris soin de diminuer les droits tarifaires sur les produits fabriqués par des entreprises canadiennes en phase de maturité, et que ce renoncement au protectionnisme diminua significativement les pertes de poids mort statiques résultant des politiques commerciales du Canada postérieures à 1890.

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  • Ian Keay, 2019. "Protection for maturing industries: Evidence from Canadian trade patterns and trade policy, 1870–1913," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(4), pages 1464-1496, November.
  • Handle: RePEc:wly:canjec:v:52:y:2019:i:4:p:1464-1496
    DOI: 10.1111/caje.12410
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    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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