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The IRPP presented research from its forthcoming edited volume Redesigning Canadian Trade Policies for New Global Realities. In a 90-minute session of the Canadian Economics Association (CEA) annual meeting, the three editors of the volume (Stephen Tapp, Ari Van Assche and Robert Wolfe) presented research findings from several prereleased chapters and previewed some of the other chapters in the volume.
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Stephen TappResearch Director,
Institute for Research on Public Policy (IRPP)
Canadian Economics Association Annual MeetingsRyerson University
May 29, 2015
Contributors
Canada, US, Europe
academics: economics, business, public policy, law
government researchers
practitioners
1
IRPP trade volume
25 chapters, 5 published:
Firm-level (Steve)
Global value chains (Ari)
Canadian trade policies (Bob)
irpp.org/research/trade
2
Firm-level trade theory and Canadian evidence
Theory predicts several trade/productivity channels
Firm-level data clarify those most relevant for Canada
What factors influence success abroad?
How do firms respond to tariff cuts?
Are SMEs international experiences different?
3
Aggregate correlation
* Trade share = exports + imports/GDP (current dollars); Business sector MFP. Source: Baldwin and Yan (IRPP)
4
Trade and productivity, 1981-2013
5Domestic marketDont produce
Export and domestic market
Productivity
Profits
Total profits
cpo cpe
*cpo/e= cut-off productivity for operating/exporting Source: Lapham (IRPP)
Sorting by export status, Melitz model
Fixed trade costs Uncertain up-front investments
Theory: more-productive firms export (self-selection)
*Export share of total shipments. Small firms (10-99 employees); Medium (100-250); Large (>250) Source: Baldwin and Yan (IRPP)
Export intensity* by firm size
6
Exporter shares
35.2
71.5
78.9
0
10
20
30
40
50
60
70
80
Number of firms Employment Shipments
Pe
rce
nt
Manufacturing firms, 1974-2010
33.1
37.0
43.4
0
5
10
15
20
25
30
35
40
45
50
Small Medium Large
Pe
rce
nt
Canadian data: exporters produce more and larger firms export more.
early-1990s, big exporter productivity advantage
7Source: Baldwin and Yan (IRPP)
Labour productivity ratio Canadian manufacturing firms, exporters vs. non-exporters, 1990-96
162.9
100
0
20
40
60
80
100
120
140
160
180
1974-79 1979-84 1984-90 1990-96 1996-2000 2000-05 2005-10
Pe
rce
nt
Exporters were > 60% more productive than non-exporters
Exporters >60%
more productive
New exporters had the
best productivity growth
evident in other periods now a stylized fact.
7Source: Baldwin and Yan (IRPP)
Labour productivity ratio Canadian manufacturing firms, exporters vs. non-exporters, 1974-2010
0
20
40
60
80
100
120
140
160
180
1974-79 1979-84 1984-90 1990-96 1996-2000 2000-05 2005-10
Pe
rce
nt
Full sample, exporters 13% more productive
Full sample: exporters
13% more productive
Theory: firm-level treatment effects
8
Source: Baldwin and Yan; and Lapham (IRPP)
Trade/liberalization raise productivity:
Specialization, economies of scale, increased capacity use
Knowledge and technology transfer
Stronger incentives to invest and innovate
Export-import complementarities
Canadian manufacturing firms, 2002-06
Export/import firms
9Source: Baldwin and Yan (IRPP, forthcoming)
All firms
100%
Traders
67%
Import inputs only
17%
Export only
22%
Export and import inputs
28%
Non-traders
33%
Canadian manufacturing importer-exporter premia, 2002-06
performance benefits (after controls)
*Manufacturing exporters that imports inputs vs. non-traders, OLS regression with year and industry fixed effects. Source: Baldwin and Yan (IRPP, forthcoming)
10
10%
6%
0
2
4
6
8
10
12P
erc
en
t
Productivity Wages
now suggests causal effects: firms that start trading become more productive
Average productivity difference, 2002-06
*Propensity score matching and difference-in-difference regressions control for self-selection Exporting-importing manufacturers vs. non-traders. Source: Baldwin and Yan (IRPP, forthcoming)
5%
9%
-10
-5
0
5
10
Year 1 Year 2 Year 3 Year 4
Productivity gain from starting to export and import
Productivity loss from stopping to export and import
11
Average productivity difference, 2002-06
5%
9%
-1%
-8%-10
-5
0
5
10
Year 1 Year 2 Year 3 Year 4
Productivity gain from starting to export and import
Productivity loss from stopping to export and import
*Propensity score matching and difference-in-difference regressions control for self-selection Exporting-importing manufacturers vs. non-traders. Source: Baldwin and Yan (IRPP, forthcoming)
11
now suggests causal effects: firms that stop trading become less productive
New prediction: Reallocation from less- to more-productive firms
12
Source: Lapham (IRPP)
Trade liberalization spurs entry and exit, Melitz model
Profits
Productivity
EntryExit
domestic firms
exporters
4.3
4.1
3.5
1.4
0.5
0%
20%
40%
60%
80%
100%
Between plants(~60%)
Within plants (~40%)
Exporter growth
Contraction/exit of least productive firms
Better access to imports
Existing exporters raise productivtity
New exporters investand raise productivity
Canadian manufacturing after tariff cuts.
13
Source: Trefler and Melitz (2012); Lileeva and Trelfer (2010)
Sources of increased productivity, 1988-96
Recent anomaly: worse exporter productivity
14Source: Baldwin and Yan (IRPP)
Labour productivity ratio Canadian manufacturing firms,exporters vs. non-exporters, 1974-2010
85.6
0
20
40
60
80
100
120
140
160
180
1974-79 1979-84 1984-90 1990-96 1996-2000 2000-05 2005-10
Pe
rce
nt
exchange rates impact the new exporter productivity premium
15Source: Baldwin and Yan (2012)
Estimated contributions to productivity growth gaps of new exporters
TariffsExchange rate
Actual (annual average)
Estimated- with unchanged tariffs and exchange rates
- attributed to tariff changes
- attributed to exchange rate changes
Productivity gap, entrants less continuing non-exporters
Recall, new importer-exporters did better in CAD appreciation.
New policy goal: get more CanadianSMEs exporting to emerging markets
Source: DFATD16
Modest median benefits; large performance gaps
Firm-specific factors (size, productivity, innovation activities)impact SMEs export market survival probabilities
19
7
-17
79
5
-69
-80 -60 -40 -20 0 20 40 60 80
Top Exporters
Median Exporters
Bottom Exporters
Sales growth (%)
Emerging markets sales growth (%)
*No firm-level controls. Source: Sui and Goldfarb (2014) 17
75th
25th
50th
Exporter percentile
Performance of Canadian SMEs with exports to an emerging market, 1994-2008
Internet-enabled businesses reach farther
eBay 19
Traditional (large) 8
Traditional (overall) 3
*Data 2008-2013. Source: Ahmed and Melin (IRPP, forthcoming)
Share of Canadian exportersby markets served
5%1%
94%
57%
21% 23%
0%
25%
50%
75%
100%
U.S. only Non-U.S. only Both U.S. andnon-U.S.
Technology-EnabledExporters
Traditional Exporters
Export markets served by Canadian businesses (avg.)
18
Firm-level approach
Reveals differences:
in firm performance (new exporters vs. exporter-importers); within industry responses; by firm size
Shows that:
better firms trade; and that trade betters firms
trade and policy can help (or hinder) Canada's economic performance
Quantifies which mechanisms matter
reallocation; investment; exchange rates; tariffs
19
Policy implications
Reduce fixed costs of international participation
Facilitate imports
Consider entry/exit not only existing trade and traders
Study distributional impacts of trade on firms/workers
Need firm-level data, Canadian models
Source: Lapham (IRPP)20
Outstanding issues
From productivity to jobs, income, distributional issues
Beyond manufacturing to resources, agriculture, services, electronic commerce
How/can policy encourage international activity without increasing risk or rewarding existing behavior?
How/can/should SMEs be targeted?
21