Changing Trade Barriers and Canadian Firms: Survival and Exit After the Canada-U.S. Free Trade Agreement

Jennifer Baggs

Analytical Studies Branch Research Paper Series from Statistics Canada, Analytical Studies Branch

Abstract:

This paper considers the implications of changing trade barriers on the survival of Canadian manufacturing firms. A segmented market Cournot model was developed to describe the effects of trade liberalization for heterogeneous firms operating in diverse industries. The predictions of this model are tested empirically using firm-level data for both public and private corporations and tariff rates for both Canada and the United States. Our findings suggest that Canadian tariff reductions decreased the probability of the survival of Canadian firms while declines in American tariffs increased the probability. Combining these two effects, firms in two-thirds of Canadian manufacturing industries saw their probability of survival increase as a result of the tariff reductions mandated by the Canada-U.S. Free Trade Agreement. However, the sensitivity of individual firms to tariff changes was mitigated by the characteristics of those firms. In particular, productivity and leverage played substantial roles in determining a firm's vulnerability to failure as a result of trade liberalization.

Keywords: Business adaptation and adjustment; Business performance and ownership; Entry; exit; mergers and growth; International trade; Small and medium-sized businesses; Trade patterns (search for similar items in EconPapers)
Date: 2004-04-28
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:stc:stcp3e:2004205e

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