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

Economic Analysis (EA) Research Paper No. 031

37 Pages Posted: 9 Apr 2009

See all articles by John R. Baldwin

John R. Baldwin

Statistics Canada - Microeconomic Analysis Division

Richard E. Caves

Harvard University & Statistics Canada; Government of Canada - Analytical Studies Branch

Wulong Gu

Government of Canada - Micro-Economic Analysis Division

Date Written: March 24, 2005

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.

Keywords: diversification, trade and product line specialization

JEL Classification: L25, D21

Suggested Citation

Baldwin, John R. and Caves, Richard E. and Gu, Wulong, Responses to Trade Liberalization: Changes in Product Diversification in Foreign- and Domestic-Controlled Plants (March 24, 2005). Economic Analysis (EA) Research Paper No. 031, Available at SSRN: https://ssrn.com/abstract=1375056 or http://dx.doi.org/10.2139/ssrn.1375056

John R. Baldwin (Contact Author)

Statistics Canada - Microeconomic Analysis Division ( email )

24 Floor - R.H.Coats Building
Tunney's Pasture
Ottawa, Ontaria K1A 0T6
Canada
613-951-8588 (Phone)
613-951-5403 (Fax)

Richard E. Caves

Harvard University & Statistics Canada ( email )

Littauer Center
Room 210
Cambridge, MA 02138
United States
617-495-2127 (Phone)

Government of Canada - Analytical Studies Branch

120 Parkdale Avenue
24th Floor, R.H. Coats Building
Ottawa, Ontario K1A 0T6
Canada

Wulong Gu

Government of Canada - Micro-Economic Analysis Division ( email )

24 Floor - R.H.Coats Building
Tunney's Pasture
Ottawa, Ontaria K1A 0T6
Canada

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
60
Abstract Views
525
rank
436,931
PlumX Metrics