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Changing Trade Barriers and Canadian Firms: Survival and Exit After the Canada-U.S. Free Trade Agreement

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  • Baggs, Jennifer

Abstract

This paper considers the implications of changing trade barriers on the survival of Canadian manufacturing firms. A segmented market Cournot model was developed to describe the effects of trade liberalization for heterogeneous firms operating in diverse industries. The predictions of this model are tested empirically using firm-level data for both public and private corporations and tariff rates for both Canada and the United States. Our findings suggest that Canadian tariff reductions decreased the probability of the survival of Canadian firms while declines in American tariffs increased the probability. Combining these two effects, firms in two-thirds of Canadian manufacturing industries saw their probability of survival increase as a result of the tariff reductions mandated by the Canada-U.S. Free Trade Agreement. However, the sensitivity of individual firms to tariff changes was mitigated by the characteristics of those firms. In particular, productivity and leverage played substantial roles in determining a firm's vulnerability to failure as a result of trade liberalization.

Suggested Citation

  • Baggs, Jennifer, 2004. "Changing Trade Barriers and Canadian Firms: Survival and Exit After the Canada-U.S. Free Trade Agreement," Analytical Studies Branch Research Paper Series 2004205e, Statistics Canada, Analytical Studies Branch.
  • Handle: RePEc:stc:stcp3e:2004205e
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    Cited by:

    1. Breinlich, Holger, 2008. "Trade liberalization and industrial restructuring through mergers and acquisitions," Journal of International Economics, Elsevier, vol. 76(2), pages 254-266, December.
    2. Wulong Gu & Gary Sawchuk & Lori Rennison, 2003. "The effect of tariff reductions on firm size and firm turnover in canadian manufacturing," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 139(3), pages 440-459, September.
    3. Gu, Wulong & Sawchuk, Gary, 2006. "How Are Canadian Regions Adjusting to a Larger and More Integrated North American Market?," Economic Analysis (EA) Research Paper Series 2006039e, Statistics Canada, Analytical Studies Branch.
    4. Rafaelita M. Aldaba, . "Understanding the Relationship Between Globalization and Survival of Philippine SMEs," Chapters, Economic Research Institute for ASEAN and East Asia (ERIA).
    5. Aldaba, Rafaelita M., 2012. "Surviving Trade Liberalization in Philippine Manufacturing," Discussion Papers DP 2012-10, Philippine Institute for Development Studies.
    6. Gu, Wulong & Sawchuk, Gary & Whewell, Lori, 2003. "Effet de la reduction des tarifs sur la taille et sur le roulement des entreprises dans le secteur canadien de la fabrication," Serie de documents de recherche sur l'analyse economique (AE) 2003014f, Statistics Canada, Direction des etudes analytiques.
    7. Larochelle-Cote, Sebastien, 2005. "Summary Of: Tariff Reduction and Employment in Canadian Manufacturing, 1988-1994," Analytical Studies Branch Research Paper Series 2005259e, Statistics Canada, Analytical Studies Branch.

    More about this item

    Keywords

    Business adaptation and adjustment; Business performance and ownership; Entry; exit; mergers and growth; International trade; Small and medium-sized businesses; Trade patterns;

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