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Death of Canadian Manufacturing Plants: Heterogeneous Responses to Changes in Tariffs and Real Exchange Rates

Baldwin, John R. Yan, Beiling
Authors registered in the RePEc Author Service: John Russel Baldwin and Beiling Yan ()

Economic Analysis (EA) Research Paper Series from Statistics Canada, Analytical Studies Branch

Abstract: We examine the simultaneous effects of real-exchange-rate movements and of tariff reductions on plant death in Canadian manufacturing industries between 1979 and 1996. We find that both currency appreciation and tariff cuts increase the probability of plant death, but that tariff reductions have a much greater effect. Consistent with the implications of recent international-trade models involving heterogeneous firms, we further find that the effect of exchange-rate movements and tariff cuts on exit are heterogeneous across plants - particularly pronounced among least efficient plants. Our results reveal multi-dimensional heterogeneity that current models featuring one-dimensional heterogeneity (efficiency differences among plants) cannot fully explain. There are significant and substantial differences between exporters and non-exporters, and between domestic- and foreign- controlled plants. Exporters and foreign-owned plants have much lower failure rates; however, their survival is more sensitive to changes in tariffs and real exchange rates, whether differences in their efficiency levels are controlled or not.

Keywords: Manufacturing; Business performance and ownership; Business adaptation and adjustment; Entry; exit; mergers and growth (search for similar items in EconPapers)
Date: 2010-04-14
New Economics Papers: this item is included in nep-bec, nep-eff, nep-ent, nep-int and nep-opm
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Journal Article: The death of Canadian manufacturing plants: heterogeneous responses to changes in tariffs and real exchange rates (2011) Downloads
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