U.S.-Canada Trade Liberalization and MNC Production Location

Open Access
Publisher Website
Google Scholar
Abstract
Using coné dential é rm-level panel data from the Bureau of Economic Analysis, we examine how the bilateral trade è ows of U.S. multinational corporations (MNCs) and their Canadian afé liates re- sponded to U.S.-Canadian tariff reductions from 1983 to 1992. We é nd that Canadian afé liate sales to the United States are negatively correlated with Canadian tariffs, but U.S. parent sales to Canadian afé liates have little association with Canadian tariffs. These results contradict the notion that Canadian tariff reductions would lead to a " hollowing out" of Canadian manufacturing. We also é nd substantial heterogeneity in MNC responses to tariff changes within narrowly deé ned manufacturing indus- tries. Overall, bilateral trade liberalization is trade-creating, as U.S. MNCs integrated their North American production such that Canadian afé liates increased sales to the United States and reduced domestic sales.

This publication has 4 references indexed in Scilit: