Free Trade, Scale Economies and Productivity Growth in Canadian Manufacturing

Abstract

Liberalized trade between Canada and the United States has long been advocated on the grounds that it would per mit Canadian manufacturersto take advantage of the scale economies associated w ith a larger market and thus lead to improved productivity. This paper reports e stimates of the degree of scale economies and its contribution to total factor p roductivity growth in 22 Canadian manufacturing industries. The main conclusion is that the extent of scale economieshas been grossly exaggerated. Consequently , the potential productivity gains to Canada from freer trade are unlikely to be as great as some economists have predicted. Copyright 1986 by Blackwell Publishers Ltd and The Victoria University of Manchester