Employment Adjustments in High-Trade-Exposed Manufacturing in Canada
The study presents a model and estimates the dynamic response of employment in high-trade-exposed manufacturing to the Canadian dollar’s appreciation. The evolution of employment shares of high-trade-exposed manufacturing for the 10 provinces from 1987 to 2006 is captured using a general error correction model. This model is estimated using state-of-the-art time-series–cross-sectional (TSCS) data econometrics. The main finding of the study is that a substantial part of the adjustment to the Canadian dollar’s appreciation since 2002 had already been completed in Canadian high-trade-exposed manufacturing industries by July 2007. However, simulation results suggest further employment losses in these industries if the value of the Canadian dollar remains around US$0.95. The reason for these further losses is that employment share does not adjust immediately to movements in the exchange rate. Estimates from the models indicate that between 60 percent and 70 percent of the adjustment to exchange rate movements is completed after two years. Consequently, most of the adjustment that still needs to be done results from the appreciation of the Canadian dollar thus far in 2007. The results also suggest that the effect of movements in the real exchange rate on employment in high-trade-exposed manufacturing is highly heterogeneous across provinces. Not surprisingly, the results suggest that the effect would be greater and particularly significant in Quebec and Ontario. If the dollar remains around US$0.95, simulation results suggest that the proportion of the adjustment that still needs to be done (July 2007) is less in Quebec (between 18 percent and 26 percent) and Ontario (between 27 percent and 33 percent) than in Canada as a whole (between 30 percent and 36 percent). If the Canadian dollar remains at or around parity with the U.S. dollar, the proportion of the adjustment still remaining increases to the 31 percent and 37 percent range for Quebec, 39 percent and 43 percent range for Ontario, and 42 percent and 46 percent range for Canada as a whole. There is a considerable amount of risk involved in simulation exercises of this type. The risks are related to uncertainty regarding the future evolution of two key variables of the models: the value of the Canadian dollar, and the evolution of the U.S. economy. Risk also results from model uncertainty.
|Date of creation:||2008|
|Contact details of provider:|| Postal: PO Box 450, Station A, Ottawa, Ontario, K1N 6N5|
Phone: (613) 562-5753
Fax: (613) 562-5999
Web page: http://www.socialsciences.uottawa.ca/eco/eng/index.asp
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michel Beine & Serge Coulombe, 2007.
"Economic integration and the diversification of regional exports: evidence from the Canadian--U.S. Free Trade Agreement,"
Journal of Economic Geography,
Oxford University Press, vol. 7(1), pages 93-111, January.
- Michel Beine & Serge Coulombe, 2007. "Economic integration and the diversification of regional exports: evidence from the Canadian-US free trade agreement," ULB Institutional Repository 2013/10417, ULB -- Universite Libre de Bruxelles.
- 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.
- Daniel Trefler, 2001. "The Long and Short of the Canada-U.S. Free Trade Agreement," NBER Working Papers 8293, National Bureau of Economic Research, Inc.
- Daniel Trefler, 2006. "The Long and Short of the Canada-U.S. Free Trade Agreement," STICERD - Economics of Industry Papers 41, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Daniel Trefler, 2006. "The long and short of the Canada-U.S. free trade agreement," LSE Research Online Documents on Economics 6721, London School of Economics and Political Science, LSE Library.
- Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
- R Blundell & Steven Bond, "undated". "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
- Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
- Richard Blundell & Stephen Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
- Danny Leung & Terence Yuen, 2007. "Labour Market Adjustments to Exchange Rate Fluctuations: Evidence from Canadian Manufacturing Industries," Open Economies Review, Springer, vol. 18(2), pages 177-189, April.
- Danny Leung & Terence Yuen, 2005. "Labour Market Adjustments to Exchange Rate Fluctuations: Evidence from Canadian Manufacturing Industries," Staff Working Papers 05-14, Bank of Canada.
- Kiviet, Jan F., 1995. "On bias, inconsistency, and efficiency of various estimators in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 68(1), pages 53-78, July.
- Tom Doan, "undated". "LSDVC: RATS procedure to estimate a dynamic FE model with correction for bias," Statistical Software Components RTS00111, Boston College Department of Economics.
- Peter C. B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Econometrica, Econometric Society, vol. 67(5), pages 1057-1112, September.
- Peter C.B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Cowles Foundation Discussion Papers 1222, Cowles Foundation for Research in Economics, Yale University.
- Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
- Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
- Tom Doan, "undated". "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October.
- Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ott:wpaper:0803e. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Diane Ritchot)
If references are entirely missing, you can add them using this form.