Geographic market access and the effects of trade on length of production run, product diversity and plant scale of Canadian manufacturing plants, 1974-1999

Abstract

While much attention has been paid to the effects of trade liberalization at the national scale, relatively little attention has been give to whether these effects vary across regions. This article examines how Canada’s increased integration into North American markets has differentially affected the manufacturing sector of different Canadian regions. Using heterogeneous models of firms to inform the analysis, it asks how plant specialization, plant size and production-run length in manufacturing—three characteristics of industrial structure that affect productivity—have changed as manufacturing plants in different Canadian regions were integrated into North American markets. The data that are used for the analysis cover the period from 1973 to 1999. The study finds that plant size and production-run length were larger in regions that were closer to the American heartland. Moreover, as export intensity increased as a result of trade liberalization, both production-run length and plant size increased more in the regions that were better situated with respect to the US market. These increases were particularly large in plants that possessed a comparative advantage. The effects of trade liberalization are not the same in all locations in a country that has widely separated and disparate regions.