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Responses to Trade Liberalization: Changes in Product Diversification in Foreign- and Domestic-controlled Plants

  • Gu, Wulong
  • Caves, Richard
  • Baldwin, John R.

This paper studies the impact that a small country joining a regional trade agreement, but particularly a small country, might be expected to gain from the exploitation of scale economies. It makes use of the experience of Canada when it entered into the Canada-United States Free Trade Agreement (FTA) in the early 1990s. It finds that there was a general increase in the pace of plant commodity specialization around the time of implementation of the Free Trade Agreement. At the time of the treaty, plant diversity was found to be higher in larger plants and in industries with assets that are associated with scope economies. Diversity was also higher in industries that had higher rates of tariff protection. Over the 1980s and 1990s, plant diversity decreased with reductions in both U.S. and Canadian tariffs. And the decline was greater during the post FTA era than before, thereby suggesting that this treaty had an impact above and beyond that just engendered by the tariff reductions that were associated with it. The study also found that foreign-controlled plants tended to adjust more over the entire period.

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Paper provided by Statistics Canada, Analytical Studies Branch in its series Economic Analysis (EA) Research Paper Series with number 2005031e.

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Date of creation: 24 Mar 2005
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Handle: RePEc:stc:stcp5e:2005031e
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  1. Markusen, James R. & Rutherford, Thomas F. & Hunter, Linda, 1995. "Trade liberalization in a multinational-dominated industry," Journal of International Economics, Elsevier, vol. 38(1-2), pages 95-117, February.
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  7. Jacquemin, Alexis P & Berry, Charles H, 1979. "Entropy Measure of Diversification and Corporate Growth," Journal of Industrial Economics, Wiley Blackwell, vol. 27(4), pages 359-69, June.
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  17. Rama, Ed & Sabourin, David & Baldwin, John R., 1999. "Growth of Advanced Technology Use in Canadian Manufacturing During the 1990's," Analytical Studies Branch Research Paper Series 1999105e, Statistics Canada, Analytical Studies Branch.
  18. Dhaliwal, Naginder & Baldwin, John R., 2000. "Labour Productivity Differences Between Domestic and Foreign-controlled Establishments in the Canadian Manufacturing Sector," Analytical Studies Branch Research Paper Series 2000118e, Statistics Canada, Analytical Studies Branch.
  19. Tang, Jianmin & Baldwin, John R. & Jarmin , Ron S., 2002. "The Trend to Smaller Producers in Manufacturing: A Canada/U.S. Comparison," Economic Analysis (EA) Research Paper Series 2002003e, Statistics Canada, Analytical Studies Branch.
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