The Long and Short of the Canada-U.S. Free Trade Agreement

Daniel Trefler

NBER Working Paper No. 8293
Issued in May 2001
NBER Program(s):   ITI

The Canada-U.S. Free Trade Agreement (FTA) provides a unique window on the effects of trade liberalization. It was an unusually clean trade policy exercise in that it was not bundled into a larger package of macroeconomic or market reforms. This paper uses the 1989-96 Canadian FTA experience to examine the short-run adjustment costs and long-run efficiency gains that flow from trade liberalization. For industries subject to large tariff cuts (these are typically low-end' manufacturing industries), the short-run costs included a 15% decline in employment and about a 10% decline in both output and the number of plants. Balanced against these large short-run adjustment costs were long-run labour productivity gains of 17% or a spectacular 1.0% per year. Although good capital stock and plant-level data are lacking, an attempt is made to identify the sources of FTA-induced labour productivity growth. Surprisingly, this growth is not due to rising output per plant, increased investment, or market share shifts to high-productivity plants. Instead, half of the 17% labour productivity growth appears due to favourable plant turnover (entry and exit) and rising technical efficiency.

download in pdf format
   (942 K)

email paper

A non-technical summary of this paper is available in the September 2001 NBER digest.  You can sign up to receive the NBER Digest by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w8293

Published: Trefler, Danie. "The Long And Short Of The Canada-U.S. Free Trade Agreement," American Economic Review, 2004, v94(4,Sep), 870-895. citation courtesy of

Users who downloaded this paper also downloaded these:
Grossman and Helpman w4597 The Politics of Free Trade Agreements
Antweiler, Copeland, and Taylor w6707 Is Free Trade Good for the Environment?
Leamer w3991 Wage Effects of A U.S. - Mexican Free Trade Agreement
Grossman and Krueger w3914 Environmental Impacts of a North American Free Trade Agreement
Krueger w7429 Trade Creation and Trade Diversion Under NAFTA
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us