The Effectiveness of Canada’s Navy on Escort Duty

This paper examines the potential costs a country faces when it fails to develop domestic arms manufacturing. I examine these costs using the historical example of Canada’s decision to not develop domestic naval shipbuilding capacity prior to World War II. Canada’s primary naval responsibility during the war was to escort convoys between the United Kingdom and North America. However its lack of advanced domestic shipbuilding capacity and congestion at Allied shipyards, meant that Canada could not obtain the relatively advanced destroyer class vessels necessary for convoy duty. Instead it had to rely on less advanced corvette class vessels, which were simple enough to be manufactured domestically. Using a unique data set, created for this project, I match convoy movements to German U-boat locations in order to examine the escort composition and the number of merchant ships lost when an engagement occurred. Using this data I find that destroyers were 2.14 more effective than corvettes at preventing the loss of a merchant ship. Then, by constructing a counterfactual scenario, I find that developing a domestic ship building industry in Canada would have netted the Allies a benefit of 28.7 million 1940 Canadian dollars. JEL classification: N42, F51, F52, H56, H57