Chapter

The Impact of Trade on Plant Scale, Production-Run Length, and Diversification

John Baldwin and Wulong Gu

in Producer Dynamics

Published by University of Chicago Press

Published in print March 2009 | ISBN: 9780226172569
Published online February 2013 | e-ISBN: 9780226172576 | DOI: http://dx.doi.org/10.7208/chicago/9780226172576.003.0016
The Impact of Trade on Plant Scale, Production-Run Length, and Diversification

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This chapter examines the effect of trade liberalization resulting from the 1989 Canada-U.S. Free Trade Agreement (FTA) on the decision of Canadian manufacturers to enter or exit the export market. It shows that nonexporting firms decrease the number of product lines and reduce plant size in response to a lowering of tariffs. Additionally, it finds that exporting firms become more specialized and larger but these changes are not strongly linked with industry-specific tariff reductions. In Canada and the United States, the tariff cuts resemble symmetric bilateral trade liberalization, particularly during the FTA period. While exporters decrease product ranges relative to nonexporters, the decline in the number of products is not connected to tariff cuts. Tariff cuts reduce the product diversification and size of nonexporting plants, and have no effect on the production-run length of those plants.

Keywords: trade liberalization; Canada-U.S. Free Trade Agreement; Canadian manufacturers; export market; nonexporting firms; tariff cuts; Canada; United States

Chapter.  13852 words.  Illustrated.

Subjects: Microeconomics

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