The new study "Trade liberalization and productivity dynamics: Evidence from Canada," investigates the mechanism by which the Canadian-US Free Trade Agreement (FTA) contributed to the growth of productivity in the Canadian manufacturing sector.

Using data from Statistics Canada's Annual Survey of Manufactures, the study found that tariff concessions by Canada under the FTA increased exit rates among moderately productive non-exporting plants.

This led to the reallocation of market shares toward highly productive plants, which explains why aggregate productivity gains were observed when Canadian tariffs were reduced.

This study also found that US tariff concessions led to growth in productivity within Canadian firms that were exporters and, especially, new entrants into the export market.

The research paper "Trade liberalization and productivity dynamics: Evidence from Canada" is now available free.