Manufacturing in a Natural Resource Based Economy: Evidence from Canadian Plants

Abstract

This study investigates the effects of an oil boom on manufacturing plants performance. First, we derive several predictions using a model of heterogeneous firms. Second, we test these predictions on a plant level dataset using the Canadian Annual Survey of Manufacturers for 2000-2010. We exploit the time variation of the booming natural resource sector revenue in an oil-producing area in combination with the location of manufacturing plants to create an exogenous treatment variable. The outcome variables include plant-level wages, employment, sales, and exports. We find that initial plant-level productivity provides an important differentiation in average plants effects. Plants that are more productive become more likely to export in response to the oil boom, while less productive plants become less likely to export. Exporting firms become more likely to increase wages relative to non-exporting firms, but less likely to increase employment. While there is a great variety in the effect by sector, we do not observe that industry linkages with the resource industry drive plant performance.