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An Empty Promise: Average Cost Savings And Scale Economies Among Canadian And American Manufacturers, 1910-1998

Ian Keay

No 1002, Working Paper from Economics Department, Queen's University

Abstract: During the debate that led up to the implementation of a bilateral free trade agreement between Canada and the U.S. on January 1, 1989, much was made of economists' claims that both nations could expect significant welfare improvements as a result of the removal of tariffs on traded goods. The welfare gains were expected to flow from average cost savings associated with the exploitation of scale economies. In this paper we show that it was overly optimistic to predict substantive reductions in average costs in the response to any increases in the scale of production among Canadian or American manufacturing firms. Therefore, ex ante we should have expected trade liberalization between Canada and the U.S. to have had only muted scale, average cost, and welfare effects.

Keywords: Economic History; Technology and Scale; Growth and Fluctuations (search for similar items in EconPapers)
JEL-codes: N12 N62 L61 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2001-10
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