Rationalization E ects of Tari Reductions
نویسندگان
چکیده
We analyze a panel of 230 Canadian manufacturing industries to investigate whether trade liberalization promotes e ciency through increased scale. During the six years following the Free Trade Agreement with the United States, Canadian manufacturing exhibited substantial rationalization|a decline in the number of plants accompanied by increases in output per plant. We nd that the bilateral tari reductions had opposing e ects on scale. Contraction induced by lower Canadian tari s largely o set the 10% scale increase caused by U.S. tari cuts. The observed increase in scale arose due to currency depreciation, compositional shifts towards high-scale industries, and undercounting of small establishments. JEL classi cation: F1
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