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

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

Abstract

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.

Suggested Citation

  • Baldwin, John R. & Caves, Richard & Gu, Wulong, 2005. "Responses to Trade Liberalization: Changes in Product Diversification in Foreign- and Domestic-controlled Plants," Economic Analysis (EA) Research Paper Series 2005031e, Statistics Canada, Analytical Studies Branch.
  • Handle: RePEc:stc:stcp5e:2005031e
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    References listed on IDEAS

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    13. Baldwin, John R. & Jarmin , Ron S. & Tang, Jianmin, 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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    19. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
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    Cited by:

    1. Baldwin, John R. & Brown, W. Mark & Gu, Wulong, 2008. "Geographic Market Access and the Effects of Trade on Length of Production Run, Product Diversity and Plant Scale of Canadian Manufacturing Plants, 1974 to 1999," Economic Analysis (EA) Research Paper Series 2008052e, Statistics Canada, Analytical Studies Branch.
    2. Marc J. Melitz & Daniel Trefler, 2012. "Gains from Trade When Firms Matter," Journal of Economic Perspectives, American Economic Association, vol. 26(2), pages 91-118, Spring.
    3. John Baldwin & Wulong Gu, 2009. "The Impact of Trade on Plant Scale, Production-Run Length and Diversification," NBER Chapters,in: Producer Dynamics: New Evidence from Micro Data, pages 557-592 National Bureau of Economic Research, Inc.
    4. Alla Lileeva, 2008. "Trade liberalization and productivity dynamics: evidence from Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 41(2), pages 360-390, May.
    5. Baldwin, John R. & Gu, Wulong, 2006. "Les repercussions du commerce sur la taille des usines, la duree des cycles de production et la diversification," Serie de documents de recherche sur l'analyse economique (AE) 2006038f, Statistics Canada, Direction des etudes analytiques.
    6. 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.
    7. John Baldwin & Beiling Yan, 2011. "The death of Canadian manufacturing plants: heterogeneous responses to changes in tariffs and real exchange rates," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 147(1), pages 131-167, April.
    8. Baldwin, John R. & Gellatly, Guy, 2007. "Global Links: Multinationals in Canada: An Overview of Research at Statistics Canada," The Canadian Economy in Transition 2007014e, Statistics Canada, Economic Analysis Division.
    9. Gu, Wulong & Sawchuk, Gary, 2006. "Comment les regions du Canada s'adaptent-elles a un marche nord-americain plus grand et plus integre?," Serie de documents de recherche sur l'analyse economique (AE) 2006039f, Statistics Canada, Direction des etudes analytiques.
    10. Baldwin, John R. & Lileeva, Alla, 2008. "Adapting to Import Competition: Effects of Low-wage Trade on Commodity Mix in Canadian Manufacturing Plants," Economic Analysis (EA) Research Paper Series 2008054e, Statistics Canada, Analytical Studies Branch.
    11. Baldwin, John R. & Lileeva, Alla, 2008. "Adaptation a la concurrence des importations : effets du commerce avec les pays a bas salaires sur le portefeuille de produits des etablissements manufacturiers canadiens," Serie de documents de recherche sur l'analyse economique (AE) 2008054f, Statistics Canada, Direction des etudes analytiques.
    12. Baldwin, John R. & Brown, W. Mark, 2005. "Foreign Multinationals and Head Office Employment in Canadian Manufacturing Firms," Economic Analysis (EA) Research Paper Series 2005034e, Statistics Canada, Analytical Studies Branch.

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    Keywords

    Business adaptation and adjustment; Business performance and ownership; International trade; Trade patterns;

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