Stephen Tapp

Research Director,
Institute for Research on Public Policy (IRPP)
Canadian Economics Association Annual Meetings
Ryerson University
May 29, 2015

Contributors
Canada, US, Europe
academics: economics,
business, public policy, law
government researchers
practitioners

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?

Aggregate correlation
Trade and productivity, 1981-2013

* Trade share = exports + imports/GDP (current dollars); Business sector MFP.

Source: Baldwin and Yan (IRPP)

Theory: more-productive firms export (self-selection)

Sorting by export status, Melitz model
Profits

Total profits

Fixed trade costs

Uncertain up-front investments

cpo

Dont
produce

cpe

Domestic market

*cpo/e= cut-off productivity for operating/exporting

Source: Lapham (IRPP)

Productivity

Export and domestic

market

Canadian data: exporters produce more

and larger firms export more.
Manufacturing firms, 1974-2010
Exporter shares

Export intensity* by firm size

50

78.9

80

71.5

43.4

45

70

40
60

35

40

33.1

30

Percent

Percent

50

37.0

35.2

25
20

30

15
20

10

10

0
Number of firms

Employment

Shipments

Small

Medium

Large

*Export share of total shipments. Small firms (10-99 employees); Medium (100-250); Large (>250)
Source: Baldwin and Yan (IRPP)

early-1990s, big exporter productivity advantage

Labour productivity ratio Canadian manufacturing firms,
exporters vs. non-exporters, 1990-96
180
162.9
160

Exporters >60%

Exporters were > 60% more

more
productive
productive
than
non-exporters

140

Percent

120

100

100

80

New exporters had the

best productivity growth

60

40
20
0
1974-79

1979-84

1984-90

1990-96

1996-2000

2000-05

2005-10

7
Source: Baldwin and Yan (IRPP)

evident in other periods now a stylized fact.

Labour productivity ratio Canadian manufacturing firms,
exporters vs. non-exporters, 1974-2010
180
160
140

Full sample: exporters

Full sample, exporters

13%
more
productive
13%
more
productive

Percent

120

100
80
60

40
20
0
1974-79

1979-84

1984-90

1990-96

1996-2000

2000-05

2005-10

7
Source: Baldwin and Yan (IRPP)

Theory: firm-level treatment effects

Trade/liberalization raise productivity:

Specialization, economies of scale, increased capacity use

Knowledge and technology transfer
Stronger incentives to invest and innovate
Export-import complementarities

8
Source: Baldwin and Yan; and Lapham (IRPP)

Export/import firms
Canadian manufacturing firms, 2002-06
All firms
100%

Import
inputs only
17%

Traders

Non-traders

67%

33%

Export only
22%

Export and
import inputs
28%

9
Source: Baldwin and Yan (IRPP, forthcoming)

performance benefits (after controls)

Canadian manufacturing importer-exporter premia, 2002-06
12

10

10%

Percent

6%

Productivity

Wages

10
*Manufacturing exporters that imports inputs vs. non-traders, OLS regression with year and industry fixed effects.
Source: Baldwin and Yan (IRPP, forthcoming)

now suggests causal effects: firms that

start trading become more productive
Average productivity difference, 2002-06
10

Productivity gain from starting to export and import

9%

5%

-5

Productivity loss from stopping to export and import

-10

Year 1

Year 2

Year 3

Year 4

11
*Propensity score matching and difference-in-difference regressions control for self-selection
Exporting-importing manufacturers vs. non-traders. Source: Baldwin and Yan (IRPP, forthcoming)

now suggests causal effects: firms that

stop trading become less productive
Average productivity difference, 2002-06
10

Productivity gain from starting to export and import

9%

5%

0
-1%
-5

Productivity loss from stopping to export and import

-8%

-10

Year 1

Year 2

Year 3

Year 4

11
*Propensity score matching and difference-in-difference regressions control for self-selection
Exporting-importing manufacturers vs. non-traders. Source: Baldwin and Yan (IRPP, forthcoming)

New prediction: Reallocation from

less- to more-productive firms
Trade liberalization spurs entry and exit, Melitz model
Profits

domestic firms

exporters

Productivity

Exit
Source: Lapham (IRPP)

Entry
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Canadian manufacturing after tariff cuts.

Sources of increased productivity, 1988-96
100%

80%

0.5

Better access to imports

1.4

Existing exporters
raise productivtity

3.5

New exporters invest

and raise productivity

4.1

Contraction/exit of
least productive firms

4.3

Exporter growth

Within plants
(~40%)

60%

40%
Between plants
(~60%)

20%

0%

13
Source: Trefler and Melitz (2012); Lileeva and Trelfer (2010)

Recent anomaly: worse exporter productivity

Labour productivity ratio Canadian manufacturing firms,
exporters vs. non-exporters, 1974-2010
180
160
140

Percent

120

100
85.6

80
60

40
20
0
1974-79

1979-84

1984-90

Source: Baldwin and Yan (IRPP)

1990-96

1996-2000

2000-05

2005-10

14

exchange rates impact the

new exporter productivity premium
Estimated contributions to productivity
growth gaps of new exporters

Actual (annual average)

Tariffs
Exchange rate
Productivity gap, entrants less continuing
non-exporters
Estimated
- with unchanged tariffs and exchange rates
- attributed to tariff changes
- attributed to exchange rate changes

Recall, new importer-exporters did better in CAD appreciation.

15
Source: Baldwin and Yan (2012)

New policy goal: get more Canadian

SMEs exporting to emerging markets

16
Source: DFATD

Modest median benefits; large performance gaps

Performance of Canadian SMEs with exports to an emerging market, 1994-2008
Exporter
percentile

-80

th
Top75
Exporters

-60

-40

-20

20

Sales growth (%)

40

60

19
79

Emerging markets sales growth (%)

7

th

Median50
Exporters

-17

th

Bottom25
Exporters

80

-69

Firm-specific factors (size, productivity, innovation activities)

impact SMEs export market survival probabilities
*No firm-level controls. Source: Sui and Goldfarb (2014)

17

Internet-enabled businesses reach farther

Export markets served by
Canadian businesses (avg.)

Share of Canadian exporters

by markets served
100%

eBay

19

Traditional (large)

Traditional (overall)

94%

Technology-Enabled
Exporters
75%

Traditional Exporters
57%

50%

21%

25%

23%

5%
1%
0%

U.S. only

Non-U.S. only

Both U.S. and

non-U.S.

18
*Data 2008-2013. Source: Ahmed and Melin (IRPP, forthcoming)

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
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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

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Source: Lapham (IRPP)

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?

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