Wulong Gu

The Impact of Trade on Plant Scale, Production-Run Length and Diversification

This paper examines the effect of trade liberalization on plant scale, production-run length and product diversification. We first develop a model of trade in differentiated products with multi-product plants. We then present empirical evidence using a large panel of Canadian manufacturing plants and their experience with the 1989 Canada-U.S. Free Trade Agreement (FTA). The model predicts that the bilateral tariff reduction reduces the product diversification of exporting plants, increases the production-run length and has an ambiguous effect on the size of those plants. It also reduces the product diversification and size of non-exporting plants, and has no effect on the production-run length of those plants. The empirical evidence on non-exporting plants provides broad support for the model. The evidence on exporting plants shows that exporters reduce product diversification, and increase production-run length and plant size, but those changes do not appear to be related to tariff cuts. Once in the export markets, plants respond to forces other than tariff cuts. Further tariff cuts have less effect on those plants.

Participation in Export Markets and Productivity Performance in Canadian Manufacturing

This paper explores the linkages between export-market participation and productivity performance in Canadian manufacturing plants, between foreign-controlled and domestic-controlled plants, and between young and older plants.

The effect of tariff reductions on firm size and firm turnover in canadian manufacturing

Recent evidence suggests that tariff reductions from the Canada-U.S. Free Trade Agreement (FTA) generated substantial productivity gains in Canadian manufacturing. Using a comprehensive panel data set of 81 manufacturing industries over the 1983-1996 period, we shed new light on two potential sources of these productivity gains: increased firm size and increased firm turnover. Our empirical results confirm previous empirical findings that increased firm size was not a source of the FTA-induced productivity gains, contrary to the predictions of early theoretical models. However, we find support for the hypothesis that tariff reductions affected productivity growth through its effect on firm turnover. Our empirical results show that the FTA tariff reductions had a positive and significant effect on the exit rate of manufacturing firms. The estimated impact of the tariff cuts was an increase in the exit rate of 0.7 to 2.0 percentage points for the most affected industries over the 1988-1996 period. Supplementing this finding with recent research showing that exiting firms tend to be less productive than those that survive, this provides support for recent trade models asserting that increased exposure to international trade induces the exit of least efficient firms, thereby contributing to productivity growth.

Global Links: Multinationals, Foreign Ownership and Productivity Growth in Canadian Manufacturing

This paper examines two potential benefits of foreign-controlled plants in the Canadian manufacturing sector: the superior performance of foreign-controlled plants and their productivity spillovers to domestic plants. The paper finds that foreign-controlled plants are more productive, more innovative, more technology intensive, pay higher wages and use more skilled workers. This foreign-ownership advantage is found to be a multinational advantage. What matters for economic performance is whether plants belong to multinational enterprises (MNEs) rather than ownership per se. Canadian multinationals are as productive as foreign multinationals. We also find that MNEs have accounted for a disproportionately large share of productivity growth in the last two decades. Finally, we find robust evidence for productivity spillovers from foreign-controlled plants to domestic-controlled plants arising from increased competition and greater use of new technologies among domestic plants.

Responses to Trade Liberalization: Changes in Product Diversification in Foreign- and Domestic-Controlled Plants

This paper studies the impact that a small country joining a regional trade agreement, but particularly a small country, might be expected to gain from the exploitation of scale economies. It makes use of the experience of Canada when it entered into the Canada-United States Free Trade Agreement (FTA) in the early 1990s. It finds that there was a general increase in the pace of plant commodity specialization around the time of implementation of the Free Trade Agreement. At the time of the treaty, plant diversity was found to be higher in larger plants and in industries with assets that are associated with scope economies. Diversity was also higher in industries that had higher rates of tariff protection. Over the 1980s and 1990s, plant diversity decreased with reductions in both U.S. and Canadian tariffs. And the decline was greater during the post FTA era than before, thereby suggesting that this treaty had an impact above and beyond that just engendered by the tariff reductions that were associated with it. The study also found that foreign-controlled plants tended to adjust more over the entire period.

Multifactor Productivity in Canada: An Evaluation of Alternative Methods of Estimating Capital Services

This paper examines the effects of alternative specifications of the user costs of capital on the estimated price and volume indices of capital services. It asks how sensitive the results are to the use of exogenous versus endogenous rates of return, to alternate ways of including capital gains, and to whether corrections are made for tax rates. The paper also examines the effect of the various user cost formulae on the measured multifactor productivity growth.

Competition, Firm Turnover and Productivity Growth

This paper investigates the extent to which productivity growth is the result of firm turnover as output is shifted from one firm to another, driven by the competitive process. Turnover occurs as some firms gain market share and others lose it. Some of the resulting turnover is due to entry and exit. Another part arises from growth and decline in incumbent continuing firms. This paper proposes a method for measuring the impact of firm turnover on productivity growth and shows that it is far more important than many previous empirical studies have concluded. It argues that firm turnover associated with competition is the main source of aggregate labour productivity growth in Canadian manufacturing industries.

Industrial Competition, Shifts in Market Share and Productivity Growth

This paper proposes a method for measuring the impact of plant turnover on productivity growth and outlines how this contribution has changed in Canada as a result of substantial trade liberalization in the 1990s.

User Guide for Statistics Canada's Annual Multifactor Productivity Program

The Canadian Productivity Accounts (CPA) of Statistics Canada maintain two multifactor productivity (MFP) programs. The Major Sector Multifactor Productivity Program develops the indexes of MFP for the total business sector and major industry groups in the business sector. The Industry Multifactor Productivity Program or the Industry KLEMS Productivity Program develops the industry productivity database that includes MFP indexes, output, capital (K), labour (L), energy (E), materials (M) and services (S) inputs for the individual industries of the business sector at various levels of industry aggregation. This paper describes the methodologies and data sources that are used to construct the major sector MFP indexes and the industry productivity database (or the KLEMS database). More specifically, this paper is meant to: provide a background of the major sector MFP program and the industry KLEMS productivity program; present the methodology for measuring MFP; describe the data sources and data available from the MFP programs; present a quality rating of the industry KLEMS productivity data; and describe the research agenda related to the MFP program.

Innovation, Survival and Performance of Canadian Manufacturing Plants

This paper examines the determinants of innovation and the role of innovation in productivity growth, shifts in market share and survival in the Canadian manufacturing sector. It presents a model that examines the effect of innovation on plant performance and plant survival.