Death of Canadian Manufacturing Plants: Heterogeneous Responses to Changes in Tariffs and Real Exchange Rates

Abstract

La version française de cette publication est disponible (no 11F0027M au catalogue, n o 061). Note of appreciation:Canada owes the success of its statistical system to a long-standing partnership between Statistics Canada, the citizens of Canada, its businesses, governments, and other institutions. Accurate and timely statistical information could not be produced without their continued co-operation and goodwill. Standards of service to the publicStatistics Canada is committed to serving its clients in a prompt, reliable, and courteous manner. To this end, Statistics Canada has developed standards of service that its employees observe. To obtain a copy of these service standards, please contact Statistics Canada toll-free at 1-800-263-1136. The service standards are also published on www.statcan.gc.ca under "About us" > "Providing services to Canadians."We examine the simultaneous effects of real-exchange-rate movements and of tariff reductions on plant death in Canadian manufacturing industries between 1979 and 1996. We find that both currency appreciation and tariff cuts increase the probability of plant death, but that tariff reductions have a much greater effect. Consistent with the implications of recent internationaltrade models involving heterogeneous firms, we further find that the effect of exchange-rate movements and tariff cuts on exit are heterogeneous across plants-particularly pronounced among least efficient plants. Our results reveal multi-dimensional heterogeneity that current models featuring one-dimensional heterogeneity (efficiency differences among plants) cannot fully explain. There are significant and substantial differences between exporters and nonexporters, and between domestic-and foreign-controlled plants. Exporters and foreign-owned plants have much lower failure rates; however, their survival is more sensitive to changes in tariffs and real exchange rates, whether differences in their efficiency levels are controlled or not.

Trade openness, real exchange rates and job reallocation: evidence from Belgium

“…However, the magnitude of the effects is slightly lower than for standard flows. This is consistent with the fact that a real appreciation may force some firms to exit, as found by Baldwin and Yan (2011) and Moser et al (2010). Therefore, when focusing only on job destruction by continuing firms, I am capturing the lower bound of the total effect of a RER appreciation on job destruction and net employment growth.…”

Foreign ownership and firm survival: First evidence for enterprises in Germany

“…Results are highly countrydependent. Foreign affiliates were found to be more likely to exit as compared to their domestic counterparts in Ireland (Görg and Strobl (2003a), (2003b) and O'Farrell and Crouchley (1983), Belgium (Van Beveren (2007)), Spain (Pérez, Sanchis Llopis, and Sanchis Llopis (2004)), and Indonesia (Bernard and Sjöholm (2003)) but less likely to 4 exit in Canada (Baldwin and Yan (2011)), Italy (Colombo and Delmastro (2000)),…”

“…Baldwin and Yan (2011) argue that from a theoretical point of view the relationship that should be expected between foreign ownership and firm exit is not clear. On the one hand, FOF may have access to superior technologies belonging to their foreign owners that might increase their efficiency and lower the risk of exit.…”

“…On the other hand, Baldwin and Yan (2011) point out that FOF are less rooted in the host country economy and that they can shift their activities to another country when the local economy deteriorates. This should increase the probability of shutdown compared to nationally owned firms.…”

Import-push or export-pull? An industry-level analysis of the impact of trade on firm exit

“…Apparently, such an identification strategy does not take into account (i ) potential asymmetries in the implications of import and export openness, and (ii ) industry-level trade imbalances. Regarding the exporting side of the economy, empirical studies have focused on the exporting status of the firm, showing that exporting firms are more likely to survive Harris & Li, 2010;Baldwin & Yan, 2011). But the export-"pull" effect is related to the industry's -rather than the firm's -export activities.…”