TY  - JOUR
AU  - Trefler,Daniel
TI  - The Long and Short of the Canada-U.S. Free Trade Agreement
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8293
PY  - 2001
Y2  - May 2001
UR  - http://www.nber.org/papers/w8293
L1  - http://www.nber.org/papers/w8293.pdf
N1  - Author contact info:
Daniel Trefler
Rotman School of Management
University of Toronto
105 St. George Street
Toronto, ON M5S 3E6
CANADA
Tel: 416/946-7945
Fax: 416/978-5433
E-Mail: dtrefler@rotman.utoronto.ca
AB  - 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.
ER  -