Geographic Market Access and the Effects of Trade on Length of Production Run, Product Diversity and Plant Scale of Canadian Manufacturing Plants, 1974 to 1999

Abstract

Over the past three decades, tariff barriers have fallen significantly, leading to an increasing integration of Canadian manufactures into world markets and especially the U.S. market. Much attention has been paid to the effects of this shift at the national scale, while little attention has been given to whether these effects vary across regions. In a country that spans a continent, there is ample reason to believe that the effects of trade will vary across regions. In particular, location has a significant effect on the size of markets available to firms, and this may impact the extent to which firms reorganize their production in response to falling trade barriers. Utilizing a longitudinal microdata file of manufacturing plants (1974 to 1999), this study tests the effect of higher levels of trade across regions on the organization of production within plants. The study finds that higher levels of export intensity (exports as a share of output) across regions are positively associated with longer production runs, larger plants and product specialization within plants. These effects are strongest in Ontario and Quebec, provinces that are best situated with respect to the U.S. market.