The Long and Short of the Canada-U.S. Free Trade Agreement / Daniel Trefler.

Format:

Book

Author/Creator:

Trefler, Daniel.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8293.

NBER working paper series no. w8293

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2001.

Summary:

The Canada-U.S. Free Trade Agreement (FTA) provides a unique window on the effects of trade liberalization. It was an unusually clean trade policy exercise in that it was not bundled into a larger package of macroeconomic or market reforms. This paper uses the 1989-96 Canadian FTA experience to examine the short-run adjustment costs and long-run efficiency gains that flow from trade liberalization. For industries subject to large tariff cuts (these are typically low-end' manufacturing industries), the short-run costs included a 15% decline in employment and about a 10% decline in both output and the number of plants. Balanced against these large short-run adjustment costs were long-run labour productivity gains of 17% or a spectacular 1.0% per year. Although good capital stock and plant-level data are lacking, an attempt is made to identify the sources of FTA-induced labour productivity growth. Surprisingly, this growth is not due to rising output per plant, increased investment, or market share shifts to high-productivity plants. Instead, half of the 17% labour productivity growth appears due to favourable plant turnover (entry and exit) and rising technical efficiency.

Notes:

Print version record

May 2001.