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

Daniel Trefler

No 8293, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: F1 (search for similar items in EconPapers)
Date: 2001-05
Note: ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

Published as Trefler, Danie. "The Long And Short Of The Canada-U.S. Free Trade Agreement," American Economic Review, 2004, v94(4,Sep), 870-895.

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Related works:
Working Paper: The Long and Short of the Canada-U.S. Free Trade Agreement (2006)
Working Paper: The long and short of the Canada-U.S. free trade agreement (2006)
Journal Article: The Long and Short of the Canada-U. S. Free Trade Agreement (2004)
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