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Trade Liberalization and Productivity Dynamics: Evidence from Canada

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  • Lileeva, Alla

Abstract

This paper investigates the productivity effects of the Canada-United States Free Trade Agreement (FTA) on Canadian manufacturing. It finds that Canadian tariff cuts increased exit rates among moderately productive non-exporting plants. This led to the reallocation of market share toward highly productive plants, which helps explain why aggregate productivity gains were observed when Canadian tariffs were reduced. The paper also finds that all of the within-plant productivity gains resulting from the U.S. tariff cuts involved exporters and, especially, new entrants into the export market. It demonstrates that any lack of output responses and labour-shedding as a consequence of the FTA were experienced by Canadian plants who were non-exporters, while exporters captured the gains from the FTA.

Suggested Citation

  • Lileeva, Alla, 2008. "Trade Liberalization and Productivity Dynamics: Evidence from Canada," Economic Analysis (EA) Research Paper Series 2008051e, Statistics Canada, Analytical Studies Branch.
  • Handle: RePEc:stc:stcp5e:2008051e
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    Cited by:

    1. Arnold, Jens M. & Javorcik, Beata S. & Mattoo, Aaditya, 2011. "Does services liberalization benefit manufacturing firms?: Evidence from the Czech Republic," Journal of International Economics, Elsevier, vol. 85(1), pages 136-146, September.
    2. David L. Rigby & Thomas Kemeny & Abigail Cooke, 2017. "Plant exit and U.S. imports from low-wage countries," International Economics, CEPII research center, issue 149, pages 27-40.
    3. Ben Tomlin & Loretta Fung, 2015. "Exchange Rate Movements and the Distribution of Productivity," Review of International Economics, Wiley Blackwell, vol. 23(4), pages 782-809, September.
    4. Paul S. Segerstrom & Yoichi Sugita, 2015. "The Impact Of Trade Liberalization On Industrial Productivity," Journal of the European Economic Association, European Economic Association, vol. 13(6), pages 1167-1179, December.
    5. Chang-Tai Hsieh & Nicholas Li & Ralph Ossa & Mu-Jeung Yang, 2016. "Accounting for the New Gains from Trade Liberalization," Working Papers 16-14, Center for Economic Studies, U.S. Census Bureau.
    6. Ederington, Josh & McCalman, Phillip, 2008. "Endogenous firm heterogeneity and the dynamics of trade liberalization," Journal of International Economics, Elsevier, vol. 74(2), pages 422-440, March.
    7. Moritz Ritter, 2015. "Trade and inequality in a directed search model with firm and worker heterogeneity," Canadian Journal of Economics, Canadian Economics Association, vol. 48(5), pages 1902-1916, December.
    8. 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.
    9. Hiro Lee & Ken Itakura, 2015. "Applied General Equilibrium Analysis of Mega-Regional Free Trade Initiatives in the Asia-Pacific," OSIPP Discussion Paper 15E001, Osaka School of International Public Policy, Osaka University.
    10. Stephen S. Poloz, 2016. "The Paul Storer Memorial Lecture—Cross-Border Trade Integration and Monetary Policy," Discussion Papers 16-20, Bank of Canada.
    11. Rubini, Loris, 2014. "Innovation and the trade elasticity," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 32-46.
    12. Don Drummond & Annette Ryan & Michael R. Veall, 2013. "Improving Canada's Productivity Performance: The Potential Contribution of Firm-level Productivity Research," International Productivity Monitor, Centre for the Study of Living Standards, vol. 26, pages 86-93, Fall.
    13. Rutzer, Christian, 2014. "A Theory of Trade Liberalization and Innovations with Heterogeneous Firms," Working papers 2014/02, Faculty of Business and Economics - University of Basel.
    14. 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.
    15. Lee, Hiro & Itakura, Ken, 2018. "The welfare and sectoral adjustment effects of mega-regional trade agreements on ASEAN countries," Journal of Asian Economics, Elsevier, vol. 55(C), pages 20-32.
    16. 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.
    17. Movahedi, Mohammad, 2013. "Le commerce international, l’adoption de l’innovation et le choix de l’entrée-sortie à l’exportation des firmes
      [International trade, innovation adoption and export entry-exit choice of the firms]
      ," MPRA Paper 44268, University Library of Munich, Germany, revised 01 Jan 2014.
    18. Akinori Tomohara & Kazuhiko Yokota, 2013. "Who Gains from Foreign Direct Investment-Induced Technology Spillovers? Horizontal and Vertical Linkages," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 46(3), pages 312-324, September.

    More about this item

    Keywords

    Business adaptation and adjustment; Business performance and ownership; International trade; Manufacturing;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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