Export Market Dynamics and Plant-Level Productivity: Impact of Tariff Reductions and Exchange Rate Cycles

Economic Analysis Research Paper Series No. 063

35 Pages Posted: 21 Nov 2010  

John R. Baldwin

Statistics Canada - Microeconomic Analysis Division

Beiling Yan

Statistics Canada

Multiple version iconThere are 2 versions of this paper

Date Written: June 25, 2010

Abstract

This paper examines how trade liberalization and fluctuations in real exchange rates affect export-market entry/exit and plant-level productivity. It uses the experience of Canadian manufacturing plants over three separate periods that feature different rates of bilateral tariff reductions and differing movements in bilateral real exchange rates. The patterns of entry and exit responses as well as the productivity outcomes differ markedly in the three periods. Consistent with much of the recent literature, the paper finds that plants self-select into export markets - that is, more efficient plants are more likely to enter and less likely to exit export markets. The reverse also occurs: entrants to export markets improve their productivity performance relative to the population from which they originated and plants that stay in export markets do better than comparable plants that exited, lending support to the thesis that exporting boosts productivity. Finally, we find that overall market access conditions, including real exchange rate trends, significantly affect the extent of productivity gains to be derived from participating in export markets. In particular, the increase in the value of the Canadian dollar during the post-2002 period almost completely offset the productivity growth advantages that new export-market participants would otherwise have enjoyed.

Keywords: tariff reduction, real exchange rate, export participation, productivity growth

JEL Classification: F1, F3, L1, O4

Suggested Citation

Baldwin, John R. and Yan, Beiling, Export Market Dynamics and Plant-Level Productivity: Impact of Tariff Reductions and Exchange Rate Cycles (June 25, 2010). Economic Analysis Research Paper Series No. 063. Available at SSRN: https://ssrn.com/abstract=1711988

John R. Baldwin

Statistics Canada - Microeconomic Analysis Division ( email )

24 Floor - R.H.Coats Building
Tunney's Pasture
Ottawa, Ontaria K1A 0T6
Canada
613-951-8588 (Phone)
613-951-5403 (Fax)

Beiling Yan (Contact Author)

Statistics Canada ( email )

Ottawa, Ontario
Canada
613-951-5403 (Phone)

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