The Great Depression in Canada and the United States: A Neoclassical Perspective

Canada suffered a major depression from 1929 to 1939. In terms of output it was similar to the Great Depression in the United States. However, total factor productivity (TFP) in Canada did not recover relative to trend, while in the United States TFP had recovered by 1937. We find that the neoclassical growth model, with TFP treated as exogenous, can account for over half of the decline in output relative to trend in Canada. In contrast, we find that conventional explanations for the Great Depression—monetary shocks, terms of trade shocks, and labor market and competition policies—do not work for Canada. Journal of Economic Literature Classification Numbers: E30, N12, N42.     

Of Yeast and Mushrooms: Patterns of Industry-Level Productivity Growth

Abstract. In this paper we analyse labour productivity growth in the United States, four European countries (France, Germany, the Netherlands and United Kingdom), Australia and Canada between 1987 and 2003 from an industry perspective. Rather than analysing broad industry groups, we compare the pattern of growth in all industries through Harberger diagrams. We introduce new summary measures, which indicate the pervasiveness of growth patterns. These indicators show that investment in both information and communication technology (ICT) and non-ICT capital is fairly balanced or 'yeasty', driven by overall macro-economic conditions. However, growth of total factor productivity (TFP) is much more localized or 'mushroom-like'. In particular we find a clear distinction between countries in continental Europe, in which TFP is decelerating after 1995 and becoming more localized, and Anglo-Saxon countries in which TFP growth is accelerating and becoming more broad-based, especially after 2000. The increased breadth of Anglo-Saxon TFP growth is consistent with delayed effects of intangible investments that are complementary to ICT investments.     

TFP growth and its determinants: a model averaging approach

Total Factor Productivity (TFP) accounts for a sizable proportion of the income differences across countries. Two challenges remain to researchers aiming to explain these differences: on the one hand, TFP growth is hard to measure empirically; on the other hand, model uncertainty hampers consensus on its key determinants. This paper combines a non-parametric measure of TFP growth with Bayesian model averaging techniques in order to address both issues. Our empirical findings suggest that the most robust TFP growth determinants are time-invariant unobserved heterogeneity and trade openness. We also investigate the main determinants of two TFP components: efficiency change (i.e., catching up) and technological progress.     

Potential output growth in several industrialised countries a comparison

In this paper, we present international comparisons of potential output growth among several economies—Canada, the euro area, France, Germany, Italy, Japan, the Netherlands, the United Kingdom, and the United States—for the period 1991–2004, for which we construct consistent and homogenous capital stock series. The main estimates rely on a structural approach where output of the whole economy is described by a Cobb–Douglas function and Total Factor Productivity (TFP) is estimated allowing for possible breaks in the deterministic trend. The results confirm that over the considered period the potential gross domestic product growth has been faster in the United States than in other studied countries, reflecting a combination of higher labour contribution and faster TFP growth. Overall, this paper might help to shed some light on cross-country differences in economic performance over the recent period.     

The effect of NAFTA on internal migration in Mexico: a regional economic analysis

Trade facilitates growth in some regions of a country while shrinking others, and therefore to benefit from trade, labour may need to be able to migrate. This mobility is particularly crucial in a developing country with high income inequality like Mexico. We seek to answer the following questions: What characteristics facilitate or hinder that internal migration? Has trade liberalization changed the pattern of internal migration in Mexico? We first predict regional economic growth resulting from changes in Mexico-US tariffs by sector. We find that trade liberalization appears to have largely benefited the manufacturing sector. Next, using a spatial gravity model of migration, we find that while economic growth from trade openness drew workers to urban regions in the northern Border States of Mexico, much of the trade-driven migration occurred before NAFTA. Second, contrary to popular belief, migration from largely rural states appears to have decreased since NAFTA. We also find evidence that migration to the United States increased after NAFTA. Last, we find that income disparity in both the destination and origin region deters migration and that this effect increases after NAFTA. Thus, we see evidence that within-region income disparity can hinder migration, potentially exacerbating income disparity among regions.     

货币升值的后果--基于中国经济特征事实的理论框架

本文在一个贸易品/非贸易品两部门模型中,讨论了真实汇率外生条件下部门之间全要素生产率变化对产业结构与贸易余额的影响。我们发现,在保持名义有效汇率固定与国内物价水平稳定的货币政策组合下,市场经济体制改革所带来的贸易品部门相对非贸易品部门更快的全要素生产率进步所带来的不仅是经济增长,还会造成(1)工业/服务业产业结构扭曲;(2)贸易顺差扩大;(3)工资水平下降,并阻碍了农村劳动力向城市转移;(4)工资下降与利润率上升,收入分配恶化。解决上述问题的关键在于人民币汇率水平调整与非贸易品部门市场化改革和全要素生产率提高。     

BILATERAL TRADE RELATIONSHIP BETWEEN THE UNITED STATES AND CANADA: IMPLICATIONS OF THE FREE TRADE AGREEMENT

This study's primary objective is to evaluate empirically the economic effects of the U.S.-Canada Free Trade Agreement (FTA). The paper emphasizes bilateral trade flows of agricultural and industrial products between the United States and Canada, given that the FTA removes tariff and non-tariff barriers. It evaluates the FTA's impact on the two countries' trade with third countries. The paper specifies a traditional log-linear trade model consisting of import demand and export supply equations for both agricultural and industrial products. It uses quarterly time-series U.S. and Canadian trade data for 1972–1985.
The study uses the two-stage least-squares estimator to estimate the models. The models had R coefficients ranging from 0.78 to 0.99, indicating that the models' explanatory variables explain most causes of variations in the dependent variable. This study reveals that U.S. imports of agricultural and industrial products from Canada were more sensitive than were Canadian imports not only to import and domestic prices but also to world prices. This is because Canadian consumers have less domestic substitutes than do their U.S. counterparts. Also, Canada has a smaller internal market than does the United States. The study estimates that U.S. imports from Canada will increase $2.8 billion while Canadian imports from the United States will increase $1.2 billion. The impact on the two countries' trade with third-party countries will be insignificant.     

Trade Openness,Structural Change and Total Factor Productivity

The impact of trade openness on growth of total factor productivity (TFP) is investigated. Given the differences in tradability of goods across sectors as well as the ongoing structural change, we examine whether trade openness has had a differential impact on TFP growth of the three main sectors of an economy. While the positive impact of openness on TFP growth for the aggregate economy is confirmed, openness has had no appreciable impact on the growth of TFP in the agricultural and industrial sectors. We find that the positive effect of openness on TFP growth for the economy as a whole was mostly due to the positive relationship between the two variables for the services sector. Further, we conclude that the lack of a general consensus in past studies could be due to their neglect of structural change and temporal factors when analyzing the trade-TFP nexus.     

SOME COMPARISONS OF THE CANADIAN-U.S. INCOME DISTRIBUTIONS

This paper compares the income distribution of Canada and the United States as well as other characteristics of the population such as the labour force and income trends in the two countries in the post-war years. In both countries family income distributions show similar degrees of inequality and similar movements in real incomes through time. However, an examination of Canadian data suggests that differences do exist in underlying patterns. For example, there are greater earnings differentials between skilled and unskilled workers in Canada than in the United States while on the other hand in the United States greater differences exist between family incomes with heads in different age groups than is the case in Canada.     

The effects of currency fluctuations and trade integration on industry trade between Canada and Mexico

Since studies of North American trade flows tend to focus on the United States as the main trading partner, trade between Canada and Mexico has received relatively little attention. Here, we examine bilateral trade flows for 62 Canadian export industries to Mexico and 45 import industries from Mexico to assess the effects of currency fluctuations and trade integration on these individual trade flows. We find that Mexico’s largest export industries respond to depreciation more than Canada’s largest export industries do. Both countries’ trade flows are influenced even more by trade integration. Since there is evidence of strong intra-industry trade between these two countries, we can attribute this effect to the exploitation of economies of scale.     

Capital goods,measured TFP and growth: The case of Spain

The effect of investing in equipment and/or structures on TFP and long run growth is investigated here. We argue that economies can grow in spite of stagnant TFP if the investment rate is inefficiently high. We study the case of Spain where real GDP per worker grew at 2.74 percent annually and TFP was stagnant during 1996–2007. We show that low Spanish TFP is due to low ISTC and an inefficiently high investment in residential structures. We quantify the effect of the housing boom of the 2000s, the total cost of subsidies to residential structures in terms of TFP and income growth.     

Trade diversion from tomato suspension agreements

Abstract .  Trade barriers can cause output to be diverted to other countries and into other products. We study the effect of a voluntary price restraint (VPR) on Mexican tomatoes entering the United States. The diversion caused by the VPR is statistically and economically significant – representing over four-fifths of the direct effects of the trade barrier. When the VPR was binding, Mexico exported more tomatoes to Canada, the United States cut back on exports while Canada increased their exports to the United States. The VPR also diverted fresh tomatoes in Mexico into paste production, which was then exported to the United States.     

OF MICE AND ELEPHANTS: THE CANADA-U.S. FREE TRADE AGREEMENT

This paper critically assesses the free trade agreement between Canada and the United States. Reviewing the theoretical literature on the gains from trade and the empirical literature on bilateral trade liberalization reveals that no presumption should exist that bilateral free trade would significantly improve Canada's welfare. Moreover, because of uncertainty over future abrogation or contingent protection actions, much of the predicted rationalization of Canadian industry may not occur. If, on the other hand, firms in Canada make major investments to take advantage of the agreement, Canada's bargaining position with the United States on trade and other issues could be weakened.     

FACTORS IN CANADA-UNITED STATES REAL INCOME DIFFERENCES

This paper is a part of a larger study of economic growth in Canada, following the methods developed by Edward Denison in his book The Sources of Economic Growth in the United States and the publication Why Growth Rates Differ. The new material in this paper relates to Canada and the Canadian/U.S. comparison, while the material on Northwest Europe is drawn from the Brookings study. The present paper sets out the results to date on the differences in real output per employed person between Canada and the United States for one year, 1960. At this stage in our research the results indicate that the level of real output per employed person in Canada was about 20 per cent lower than in the United States in that year. On the basis of historical output data, it would appear that this margin of difference in Canadian/U.S. product levels has persisted throughout the present century. The central part of this paper examines the significance of differences in factor inputs in Canada and the United States and their contribution to the difference in income. The level of inputs per employed person in Canada accounts for only about 2 percentage points of the income difference between Canada and the United States. These results indicate that the overwhelming part of the difference in output per employed person between the two countries reflects the differences in output in relation to total factor inputs, rather than the magnitude of other factor inputs used in combination with labour. This result is consistent with earlier studies by Denison and others which have indicated the crucial importance of output in relation to total factor inputs, both in output growth over time and intercountry comparisons of output level. The body of the paper can give only brief attention to the numerous conceptual and statistical questions that arise in such a wide-ranging study, and the authors do not pretend to have tackled, let alone resolved, all of the wide range of problems related to this study. Nor do they claim any high degree of precision for the results, especially in the light of the statistical limitations of the basic data.     

Trade,aid and migrations: some basic policy issues

The link between trade policy and international migration is explored using data from the United States and Europe. "We conclude that restrictive trade policies in industrialised countries have most likely added to migration pressures. We then turn to the broader question of the effects of income growth in the sending countries on the propensity to migrate. We argue that, in relatively poor countries, an increase in income will be associated with higher migration flows. For middle income countries, however, income growth will lead to lower migrations. In the medium run, therefore, the relationship between development levels, as measured by GDP per capita, and the propensity to migrate follows an inverse-U pattern. Econometric analysis of aggregate migration flows from Southern Europe provides considerable support for such conjecture."     

FOREIGN TAKEOVERS AND NEW INVESTMENTS IN THE UNITED STATES

This study is unique in several respects. First, it reviews the characteristics of the top 10 industries targeted for foreign direct investment (FDI) activity in the United States between 1979 and 1987. It analyzes both overall FDI activity and new plant and expansion FDI activity. The study summarizes and tests alternative hypotheses regarding the determinants of FDI in the United States by all countries, by the United Kingdom, by the European Community, by Japan, and by Canada.
Large and growing product markets in an expanding economy have attracted FDI in the United States. Exchange rate movements have prompted opportunistic decisions to invest in U.S. production facilities. Investors' superior management skills appear to have prompted takeovers, while efforts to realize technological advantages of new physical capital and of relatively large operating plants have fostered plant and expansion investments.
Evidence exists that a desire to circumvent current—but not potential—trade restrictions has motivated foreign direct investment. FDI activities are not associated with concentrated or heavily unionized industries. Highly protected industries have attracted heavier equity FDI by Japan and heavier new plant FDI by all sources and Canada. No evidence exists that FDI in the United States by Japan or anyone else is targeted to undercut union-dominated firms or to arrest the spread of protectionist trade policies.     

FOREIGN TAKEOVERS AND NEW INVESTMENTS IN THE UNITED STATES

This study is unique in several respects. First, it reviews the characteristics of the top 10 industries targeted for foreign direct investment (FDI) activity in the United States between 1979 and 1987. It analyzes both overall FDI activity and new plant and expansion FDI activity. The study summarizes and tests alternative hypotheses regarding the determinants of FDI in the United States by all countries, by the United Kingdom, by the European Community, by Japan, and by Canada.
Large and growing product markets in an expanding economy have attracted FDI in the United States. Exchange rate movements have prompted opportunistic decisions to invest in U.S. production facilities. Investors' superior management skills appear to have prompted takeovers, while efforts to realize technological advantages of new physical capital and of relatively large operating plants have fostered plant and expansion investments.
Evidence exists that a desire to circumvent current—but not potential—trade restrictions has motivated foreign direct investment. FDI activities are not associated with concentrated or heavily unionized industries. Highly protected industries have attracted heavier equity FDI by Japan and heavier new plant FDI by all sources and Canada. No evidence exists that FDI in the United States by Japan or anyone else is targeted to undercut union-dominated firms or to arrest the spread of protectionist trade policies.     

NORTH AMERICAN FREE TRADE AGREEMENT BILATERAL TRADE EFFECTS

This study evaluates the effects of the North American Free Trade Agreement (NAFTA) on bilateral trade between the United States and Canada and between the United States and Mexico. Trade flow estimates are from a vector autoregression (VAR) model. The VAR methodology allows modeling bilateral trade in a flexible manner that incorporates both the interaction between different variables and the dynamics of trade, output, prices, and the exchange rate. After testing the outside sample forecasting ability of the models, the study produces dynamic forecasts of bilateral trade. It then compares forecasts incorporating the effects of the NAFTA with baseline forecasts. The results suggest expanded trade for all three countries and an improvement in the U.S. trade position with both Canada and Mexico.     

Trade,Determinants, and Causality: A Case of Hong Kong's Exports to The United States

This paper examines recent development in Hong Kong's exports to the United States. It explains the trade flows by estimating five demand-equations for exports. Besides, vector autoregressions are fitted to test the causal relationship among exports, exchange rates and income. Our study suggests that a sustained high growth rate of Hong Kong's exports of principal commodities to the United States contribute to the chronical bilateral trade surplus for Hong Kong. Variations in income and exchange rates, the major determinants of Hong Kong's exports, “cause” exports to change as indicated in the causality test. [420]     

Technological convergence, R&D, trade and productivity growth

This paper analyses productivity growth in a panel of 14 United Kingdom manufacturing industries since 1970. Innovation and technology transfer provide two potential sources of productivity growth for a country behind the technological frontier. We examine the roles played by research and development (R&D), international trade, and human capital in stimulating each source of productivity growth. Technology transfer is statistically significant and quantitatively important. While R&D raises rates of innovation, international trade enhances the speed of technology transfer. Human capital primarily affects output through private rates of return (captured in our index of labour quality) rather than measured TFP.