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The labour protection bias of the Canadian tariff structure Tully, Douglas Blair 1970

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T H E L A B O U R P R O T E C T I O N B I A S O F T H E C A N A D I A N T A R I F F S T R U C T U R E b y D O U G L A S B L A I R T U L L Y B . A . , U n i v e r s i t y o f B r i t i s h C o l u m b i a , 1 9 6 6 A T H E S I S S U B M I T T E D I N P A R T I A L F U L F I L M E N T O F T H E R E Q U I R E M E N T S F O R T H E D E G R E E O F M A S T E R O F A R T S i n t h e D e p a r t m e n t o f E c o n o m i c s We a c c e p t t h i s t h e s i s a s c o n f o r m i n g t o t h e r e q u i r e d s t a n d a r d T H E U N I V E R S I T Y O F B R I T I S H C O L U M B I A O c t o b e r , 1 9 7 0 In p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t o f t h e r e q u i r e m e n t s f o r a n a d v a n c e d d e g r e e a t t h e U n i v e r s i t y o f B r i t i s h C o l u m b i a , I a g r e e t h a t t h e L i b r a r y s h a l l m a k e i t f r e e l y a v a i l a b l e f o r r e f e r e n c e a n d s t u d y . I f u r t h e r a g r e e t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y p u r p o s e s may be g r a n t e d by t h e H e a d o f my D e p a r t m e n t o r by h i s r e p r e s e n t a t i v e s . I t i s u n d e r s t o o d t h a t c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l n o t be a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n . D e p a r t m e n t o f T h e U n i v e r s i t y o f B r i t i s h C o l u m b i a V a n c o u v e r 8, C a n a d a D a t e A B S T R A C T In recent years much c r i t i c i s m has been l e v e l l e d at the so-c a l l e d labour bias of pro t e c t i o n i n the advanced economies. A se r i e s of empirical studies have attempted to tes t the hypothesis that United States t a r i f f s are designed to provide higher rates of prote^ti&n f o r labour i n t e n s i v e manufacturing i n d u s t r i e s . In Canada the assumption of a labour bias has been i m p l i c i t i n much of the l i t e r a t u r e , but no study had previously been undertaken to collaborate t h i s claim. T h e o r e t i c a l j u s t i f i c a t i o n of the labour bias argument i s found i n the Samuelson-Stolper model. From t h i s base c e r t a i n measures of lab-our i n t e n s i t y and of pro t e c t i o n were developed. Several primary factor inputs were introduced. In addi t i o n to the quantity of labour input, an attempt was made to i d e n t i f y q u a l i t a t i v e differences i n the labour f a c t o r . In add i t i o n , p h y s i c a l c a p i t a l and resources were considered as important primary f a c t o r s . There was some question of the relevance of some of these, p a r t i c u l a r l y the p h y s i c a l c a p i t a l and resource f a c t o r s , i n comparative advantage arguments concerning Canadian trade i n manufactured goods. Certain conceptual problems regarding the use of " d i r e c t " versus " d i r e c t - p l u s - i n d i r e c t " factor inputs were also involved i n t h i s part of the a n a l y s i s . Two measures of protection were i d e n t i f i e d , nominal t a r i f f rates and e f f e c t i v e p rotection rates. Since the study chose to u t i l i z e only " d i r e c t " f a c t o r inputs the l a t t e r measure of pro t e c t i o n was considered i i i i i to be more relevant. E f f e c t i v e rates are a r e l a t i v e l y new concept, how-ever, and so the more common measure was also included. The r e s u l t s of the analysis i n d i c a t e d that there was, i n f a c t , a s i g n i f i c a n t labour bias i n the structure of the Canadian t a r i f f on manufactured goods. The evidence suggested that when the primary f a c -tors were combined the bia s was stronger than when any one factor was considered alone r e l a t i v e to labour. The evidence also i n d i c a t e d that two primary f a c t o r s , human c a p i t a l (the q u a l i t y of labour) and resources, r e l a t i v e to labour appeared to account f o r the b i a s . Unexplainably, the r e s u l t s pointed to a somewhat stronger r e l a t i o n s h i p when nominal rates rather than e f f e c t i v e rates were considered. TABLE OF CONTENTS Page LIST OF TABLES Chapter I. INTRODUCTION I I . FACTOR INTENSITIES IN CANADIAN MANUFACTURING INDUSTRIES III... PROTECTION OF CANADIAN MANUFACTURING INDUSTRIES 29 IV. INDUSTRY PROTECTION AND FACTOR BIAS 46 SUMMARY AND IMPLICATIONS 62 BIBLIOGRAPHY 1 78 i v L I S T O F T A B L E S T a b l e P a g e 1. C a n a d i a n T r a d e i n R e s o u r c e P r o d u c t s , 1961 . . . . 17 2. P r i m a r y F a c t o r I n t e n s i t i e s R e l a t i v e t o L a b o u r o f C a n a d i a n M a n u f a c t u r i n g I n d u s t r i e s , 1963 23 3. N o m i n a l T a r i f f s a n d E f f e c t i v e T a r i f f s f o r 121 InduTTtrxes i n t h e C a n a d i a n C e n s u s o f M a n u f a c t u r e s , 1963 , 42 4. S p e a r m a n R a n k C o r r e l a t i o n C o e f f i c i e n t s B e t w e e n N o m i n a l T a r i f f R a t e s a n d C a p i t a l I n t e n s i t i e s . . . . . . 48 5. C a p i t a l - L a b o u r I n t e n s i t i e s b y I n d u s t r y N o m i n a l P r o t e c t i o n G r o u p 49 6. S p e a r m a n R a n k C o r r e l a t i o n C o e f f i c i e n t s B e t w e e n E f f e c t i v e P r o t e c t i o n L e v e l s a n d F a c t o r I n t e n s i t i e s . . 52 7. C a p i t a l I n t e n s i t y b y I n d u s t r y E f f e c t i v e . P r o t e c t i o n G r o u p . 54 8. D i s t r i b u t i o n o f R e s o u r c e P r o d u c t I n t e n s i v e M a n u f a c t u r i n g I n d u s t r i e s b y N o m i n a l a n d E f f e c t i v e P r o t e c t i o n G r o u p s . . . 56 9. R a n k C o r r e l a t i o n C o e f f i c i e n t s B e t w e e n P r o t e c t i o n L e v e l s j a n d F a c t o r I n t e n s i t i e s f o r C a n a d i a n S e c o n d a r y M a n u f a c t u r i n g I n d u s t r i e s . . . . . . . . . . . 1. 57 10. R a n k C o r r e l a t i o n C o e f f i c i e n t s B e t w e e n P r i m a r y F a c t o r I n t e n s i t i e s a n d P r o t e c t i o n L e v e l s f o r a l l M a n u f a c t u r i n g I n d u s t r i e s . . 59 11. C r o s s R a n k C o r r e l a t i o n s B e t w e e n F a c t o r I n t e n s i t y M e a s u r e s and B e t w e e n P r o t e c t i o n M e a s u r e s 6i 12. . S u m m a r y o f C o r r e l a t i o n C o e f f i c i e n t s B e t w e e n P r i m a r y F a c t o r I n t e n s i t y a n d P r o t e c t i o n L e v e l s 63 13. W e i g h t e d F a c t o r I n t e n s i t i e s I n d i c e s f o r I n d u s t r i e s R e c e i v i n g R e l a t i v e l y H e a v y a n d R e l a t i v e l y L i g h t E f f e c t i v e P r o t e c t i o n f r o m C a n a d i a n T a r i f f s . . . . . . . . . . . . . . . . . . . 67 v A C K N O W L E D G E M E N T S I am indebted to Professor Gordon Munro, who provided guidance and supervision i n the i n i t i a l stages of this study, and to Professor John Boyd, who l a t e r assumed these r e s p o n s i b i l i t i e s on rather short notice, for their excellent comments and c r i t i c i s m s . I am grateful also to Professor John Borcich for his views at various stages, and to Profes-sor W. G. Waters I I for his encouragement as the study reached i t s con-clusion. I would'also l i k e to thank numerous family, friends and associates who have borne with me over the lengthy period preceeding completion. v i C H A P T E R I I N T R O D U C T I O N I n r e c e n t y e a r s c o n s i d e r a b l e a t t e n t i o n h a s b e e n d i r e c t e d t o w a r d s t h e d e s i g n a n d e f f e c t s o f t h e t a r i f f s t r u c t u r e s o f t h e i n d u s t r i a l i z e d e c o n -o m i e s . A common a s s e r t i o n i s t h a t d e v e l o p e d c o u n t r i e s t e n d t o c o n s t r u c t t a r i f f s c h e d u l e s w h i c h g i v e g r e a t e r p r o t e c t i o n t o i n d u s t r i e s w h i c h a r e h e a v y u s e r s o f l a b o u r , a n d t e n d t o b e o f e x p o r t i n t e r e s t t o t h e d e v e l o p - . i n g n a t i o n s . " ' " A n u m b e r o f r e c e n t s t u d i e s , p a r t i c u l a r l y w i t h r e f e r e n c e t o 2 t h e U . S . t a r i f f , h a v e b e e n d e v o t e d t o t h e q u e s t i o n o f l a b o u r p r o t e c t i o n . I n C a n a d i a n t a r i f f l i t e r a t u r e o n e f i n d s t h e a s s u m p t i o n o f l a b o u r p r o t e c t i o n i m p l i c i t i n a r g u m e n t s w h i c h s u p p o r t t h e p r e s e n t t a r i f f s y s t e m . B u t a s y e t n o e m p i r i c a l s t u d y h a s b e e n u n d e r t a k e n t o p r o v e t h e v a l i d i t y o f t h i s c l a i m . T h e p u r p o s e o f t h i s s t u d y i s t o d e t e r m i n e w h e t h e r a n y s u c h " g e n e r a l p r i n c i p l e " l i e s b e h i n d t h e s t r u c t u r e o f t h e C a n a d i a n t a r i f f , a n d p r o v i d e s o m e i n s i g h t i n t o i t s n a t u r e a n d e f f e c t s . H a r r y J o h n s o n m a k e s t h e c a s e i n Economic Policies Toward Less Developed Countries ( W a s h i n g t o n , D . C : T h e B r o o k i n g s I n s t i t u t i o n , 1 9 6 7 ) , p . 7 8 , t h a t n a t i o n a l i s m h a s l e d t h e d e v e l o p e d c o u n t r i e s t o h e a v i l y p r o -t e c t t h e i r l a b o u r i n t e n s i v e i n d u s t r i e s , a n d t h u s t o r a i s e m o n e y w a g e s a n d p r o m o t e t h e " t r a d i t i o n a l " i n d u s t r i e s , a t a t i m e w h e n e c o n o m i c l o g i c w o u l d h a v e t h e m m o v i n g i n t o t e c h n o l o g i c a l l y m o r e s o p h i s t i c a t e d a r e a s o f p r o d u c -t i o n . 2 B e a t r i c e N . V a c c a r a , Employment and Output in Protected Industries ( W a s h i n g t o n , D . C : T h e B r o o k i n g s I n s t i t u t i o n , 1 9 6 0 ) ; B e l a B a l a s s a , " T a r -i f f P r o t e c t i o n i n I n d u s t r i a l C o u n t r i e s : A n E v a l u a t i o n , " Journal of P o l i -tical Economy, L X X I I I : ( D e c e m b e r , 1 9 6 5 ) , p p . 5 7 3 - 5 9 4 ; G . B a s e v i , " T h e U n i t e d S t a t e s T a r i f f S t r u c t u r e , " Review of Economics and. S t a t i s t i c s } X L V I I ( M a y , 1 9 6 6 ) , p p . 1 4 7 - 1 6 0 ; D a v i d S . B a l l , " U n i t e d S t a t e s E f f e c t i v e T a r i f f s a n d 1 T h e S a m u e l s o n - S t o l p e r T h e o r e m T h e t h e o r e t i c a l a r g u m e n t t h a t t h e a d v a n c e d e c o n o m i e s w i l l h a v e 3 a t e n d e n c y t o p r o t e c t l a b o u r i s f o u n d i n t h e S a m u e l s o n - S t o l p e r t h e o r e m . T h e i r a n a l y s i s a s s e r t s t h a t i n c o u n t r i e s w h e r e l a b o u r i s a r e l a t i v e l y s c a r c e f a c t o r i t h a s a n i n c e n t i v e t o s e e k h i g h e r p r o t e c t i o n l e v e l s i n t h o s e i n d u s t r i e s i n w h i c h i t i s i n t e n s i v e l y u s e d . T h e t h e o r e m ^ s t a t e s t h a t p r o t e c t i o n o f t h o s e - i n d u s t r i e s w h i c h a r e i n t e n s i v e u s e r s o f t h e s c a r c e f a c t o r w i l l i n c r e a s e t h e r e l a t i v e s h a r e , a n d e v e n p o s s i b l y t h e a b s o l u t e s h a r e , o f t o t a l i n c o m e r e c e i v e d b y t h a t f a c t o r . H e n c e i t i s p r e d i c t e d t h a t l a b o u r , a s a s c a r c e f a c t o r i n d e v e l o p e d c o u n t r i e s , h a s a n i n c e n t i v e t o s e e k h i g h e r p r o t e c t i o n f o r l a b o u r i n t e n s i v e i n d u s t r i e s . T h e C a n a d i a n T a r i f f S e v e r a l r e c e n t a r g u m e n t s w h i c h a t t e m p t t o j u s t i f y t h e C a n a d i a n t a r i f f c o n t a i n t h e i m p l i c i t a s s u m p t i o n t h a t t h e e x i s t i n g s y s t e m d i s c r i -m i n a t e s i n f a v o u r o f l a b o u r i n t e n s i v e m a n u f a c t u r i n g i n d u s t r i e s . T w o v e r -s i o n s o f a " p o p u l a t i o n s u s t a i n i n g " a r g u m e n t a r e d e r i v e d a s a c o r o l l a r y of: t h e S a m u e l s o n - S t o l p e r t h e o r e m . O n e a r g u m e n t p u t f o r w a r d b y C l a r e n c e B a r -b e r i s t h a t t h e h i g h e r m o n e y w a g e r e c e i v e d b y l a b o u r a s a r e s u l t o f t h e L a b o r ' s S h a r e , " Journal of P o l i t i c a l Economy, L X X V CApril, 1967), p p . 183-187; W i l l i a m P . T r a v i s , " T h e E f f e c t i v e R a t e o f P r o t e c t i o n a n d t h e Q u e s t i o n o f L a b o r P r o t e c t i o n i n t h e U n i t e d S t a t e s , " Journal of P o l i t i c a l Economy, L X X V I CMay/June, 1968), p p . 443-461. 3 W . F . S t o l p e r a n d P . A. S a m u e l s o n , " P r o t e c t i o n a n d R e a l W a g e s , " Review of Economic Studies, I X CNovember, 1941), p p . 58-73. 3 t a r i f f h a s t e n d e d t o r e d u c e t h e l o s s o f l a b o u r t h r o u g h e m i g r a t i o n t o t h e 4 - U n i t e d S t a t e s . A n o t h e r v e r s i o n a l o n g s i m i l a r l i n e s a s s u m e s s t r u c t u r a l r i g i d i t i e s i n t h e e c o n o m y , ^ s u g g e s t i n g t h a t t h e l a b o u r p r o t e c t i o n b i a s i n t h e t a r i f f h a s i n c r e a s e d t h e d e m a n d f o r l a b o u r , a n d t h u s i n c r e a s e d t h e o p p o r t u n i t y f o r C a n a d a t o a b s o r b i m m i g r a n t s i n t o t h e e c o n o m y . ^ I n d i c a t i o n s o f b o t h v e r s i o n s c a n b e s e e n i n a n o t h e r s t u d y b y R i c h a r d C a v e s a n d R i c h a r d H o l t o n , w h i c h s u g g e s t s : T h e C a n a d i a n t a r i f f s e r v e s a s r a t i o n a l l y a s e v e r t h e p u r p o s e f o r w h i c h i t w a s d e s i g n e d . T h e t h r e a t t o t h e C a n a d i a n e c o n o m y o f h e a v y l a b o u r m i g r a t i o n t o t h e U n i t e d S t a t e s , t a k e n i n c o n n e c t i o n w i t h t h e l o w e r l a b o u r i n t e n s i t y t o C a n a d a ' s m a j o r e x p o r t i n d u s t r i e s g i v e s t h e C a n a d i a n t a r i f f a c l e a r e r j u s t i f i c a t i o n t h a n t h a t o f a l m o s t a n y o t h e r n a t i o n . 7 T h i s a r g u m e n t i s a l s o n o t e d b y W o n n a c o t t a n d W o n n a c o t t w h o p o i n t o u t t h a t " t h e C a n a d i a n t a r i f f a l l o w s g r e a t e r m o n e y w a g e s t h a n w o u l d o t h e r -„8 w i s e o c c u r . ^ C l a r e n c e B a r b e r , " C a n a d i a n T a r i f f P o l i c y , " Canadian Journal of Political Science and Economics 3 X X I ( N o v e m b e r , 1 9 5 5 ) , p . 5 2 3 . ^ T h i s a r g u m e n t s u g g e s t s t h a t w a g e r a t e s d o n o t r e s p o n d t o i n c r e a s e s i n t h e d e m a n d f o r l a b o u r . R a t h e r , i n c r e a s e d e m p l o y m e n t o p p o r t u n i t i e s e n -a b l e g r e a t e r i m m i g r a t i o n p o s s i b i l i t i e s . . ' ^ W . A . M a c k i n t o s h , The Economic Background of Dominion-Provincial Relations ( O t t a w a : K i n g ' s P r i n t e r , 1 9 3 9 ) , p . 8 4 . ^ R i c h a r d C a v e s a n d R i c h a r d H o l t o n , The Canadian Economy ( C a m b r i d g e , M a s s . : H a r v a r d U n i v e r s i t y P r e s s , 1 9 5 9 ) , p . 6 7 . 8 R o n a l d W o n n a c o t t a n d P a u l W o n n a c o t t , Free Trade Between the United States and Canada (Cambridge, M a s s . : H a r v a r d U n i v e r s i t y P r e s s , 1 9 6 7 ) , p . 22, 4 The Approach. Much controversy has arisen i n the American l i t e r a t u r e as to the appropriate approach for the analysis of the question under study. The i n i t i a l analysis was made a decade ago by Beatrice Vaccara, and was f o l -lowed at intervals by the contributions of Balassa, Basevi, B a l l , and Tra-v i s . Thus, the present study of the Canadian t a r i f f has had the advantage of following upon considerable discussion of the subject area. The second chapter of this study w i l l concentrate on an approach to the problem of factor i n t e n s i t i e s . In a review of the l i t e r a t u r e var-ious alternatives are considered and the important factors which affect international trade are discussed. Following t h i s the selected factor i n -tensity data for Canadian industry i s presented. Chapter I I I examines the concepts of nominal and e f f e c t i v e levels of protection, and presents protection data on an industry basis similar to that selected i n the preceeding chapter. Theoretical work i n recent years has indicated that nominal rates can be poor indicators of the r e a l economic effect of t a r i f f s . This question i s examined, as well as some, recent c r i t i c i s m of the concept.of e f f e c t i v e protection. In Chapter IV the major empirical results of this study are pre-sented. Labour i n t e n s i t i e s r e l a t i v e to other primary factor inputs are correlated using rank techniques with, both nominal and e f f e c t i v e protec-tion rates. 5 The major findings of the study are summarized and some of the major implications and l i m i t a t i o n s are examined i n the f i n a l chapter. A Q u a l i f i c a t i o n An a d d i t i o n a l point should be made at the outset. Only manufac-turing i n d u s t r i e s are being considered and not the r e l a t i o n s h i p between the primary and manufacturing sectors. Emphasis i s l a i d upon the Wonna-cott and Wonnacott argument that the e f f e c t of the t a r i f f today i s to d i s -t o r t the a l l o c a t i o n of factors among manufacturing i n d u s t r i e s , and not 9 between the resource extraction and manufacturing sectors. Within the manufacturing sector there i s a wide range of both nominal and e f f e c t i v e rates of pro t e c t i o n , and i t i s the question of a "general p r i n c i p l e " be-hind these b a r r i e r s that i s the subject of t h i s study. Wonnacott, and Wonnacott, op. oit,i p. 276. C H A P T E R I I F A C T O R I N T E N S I T I E S I N C A N A D I A N M A N U F A C T U R I N G I N D U S T R I E S T h e i m p o r t a n c e o f t h e c o n c e p t o f f a c t o r i n t e n s i t i e s i n i n t e r -n a t i o n a l t r a d e t h e o r y w a s f i r s t i n t r o d u c e d i n t o t h e l i t e r a t u r e b y t h e S w e -1 2 d i s h e c o n o m i s t s , H e c k s c h e r a n d O h l i n . T h e H e c k s c h e r - O h l i n t h e o r e m s u g g e s t s t h a t g i v e n d i f f e r e n t f a c t o r e n d o w m e n t s , a c c e s s t o t h e same t e c h -n o l o g y , a n d a s i t u a t i o n o f f r e e t r a d e , c o u n t r i e s w i l l t e n d t o s p e c i a l i z e i n a n d e x p o r t t h o s e c o m m o d i t i e s t h e p r o d u c t i v e p r o c e s s e s o f w h i c h r e q u i r e r e l a t i v e l y m o r e o f t h o s e f a c t o r s i n w h i c h t h e y a r e a b u n d a n t , a n d w i l l i m -p o r t t h o s e p r o d u c t s r e q u i r i n g r e l a t i v e l y m o r e o f t h e i r s c a r c e f a c t o r s . A l t h o u g h t h e t h e o r y i s m u c h c r i t i c i z e d , p r i m a r i l y f o r i t s a p p a r e n t f a i l u r e t o e x p l a i n t h e - t r a d e p a t t e r n s among t h e a d v a n c e d i n d u s t r i a l e c o n o -3 m i e s , i t f o r m s t h e b a s i s f o r c e r t a i n p r o t e c t i o n a r g u m e n t s c o m m o n l y a s s e r -t e d a s a d e f e n s e o f C a n a d i a n c o m m e r c i a l p o l i c y . . T h e i n i t i a l a r g u m e n t w a s 4 p u t f o r w a r d i n t h e 1 9 4 1 a r t i c l e o f S t o l p e r a n d S a m u e l s o n . T h e y a r g u e d E l i H e c k s c h e r , " T h e E f f e c t o f F o r e i g n T r a d e o n t h e D i s t r i b u t i o n o f I n c o m e , " Readings in 'the Theory af International Trade ( A m e r i c a n E c o n o m i c R e v i e w ; P h i l a d e l p h i a : B l a k i s t o n a n d C o . , 1 9 4 9 ) , r e p r i n t e d f r o m o r i g i n a l i n S w e d i s h o f 1 9 1 9 . 2 B e r t . i l O h l i n , Interregional and. International Trade ( C a m b r i d g e , M a s s . : H a r v a r d U n i v e r s i t y P r e s s , 1 9 6 7 ) . 3 F o r e x a m p l e , s e e : K i y o s h i K o j i m a , " T h e P a t t e r n o f I n t e r n a t i o n a l T r a d e Among A d v a n c e d C o u n t r i e s , " Hitotsubashi Journal of Economics ( J u n e , 1 9 6 4 ) , p . 2 5 . ^ W . F . S t o l p e r a n d P . A . S a m u e l s o n , " P r o t e c t i o n a n d R e a l W a g e s , " op. cit. 6 7 that t a r i f f s w i l l shift the returns to primary factors of production in favour of the scarce input. Although the existence of t a r i f f s would involve a lower total real income, the relative wage (and possibly the absolute wage"*) received by the scarce factor would tend to be higher. Hence, i t could be argued, in a country where labour is scarce, vtariffs which protect labour intensive industries w i l l raise the relative return to that factor, and perhaps even the absolute return. The v a l i d i t y of the Heckscher-Ohlin theory of trade and the Sam-uelson-Stolper theorem have been open to criticism on several grounds. F i r s t l y , what empirical evidence has been gathered to test the Heckscher-Ohlin theorem has proved rather inconclusive. The Leontief studies of U.S. exports and imports generated the famous "paradox" with results oppo-sit e to expectations.^ Similar studies of Canadian trade patterns proved equally indeterminate.^ In a two-factor model the absolute wage received by the scarce factor labour w i l l increase. Where more than two factors are involved, there is uncertainty as to the f i n a l outcome. ^Wassily Leontief, "Domestic Production and Foreign Trade; the Ameri-can Capital Position Re-examined," American Philosophical Society Proceedings XCVII (1953), pp. 332-349. Contrary to expectations Leontief observed that U.S. exports were relatively labour intensive while imports were relatively capital intensive. A number of factors have been introduced in an attempt to support the Heckscher-Ohlin theorem, including labour s k i l l s , productivi-ty, and resources. 'D. F. Wahl, "Capital and Labour Requirements for Canada's Foreign Trade," Canadian Journal of Economics and Political Science, XXVII (August, 1961), pp. 349-358; T. I. Matuszewski, P. R. P i t t s , and John A. Sawyer, "The Impact of Foreign Trade on Canadian Industry, 1956," Canadian Journal of Economics and Political Science, XXXI (May, 1965), pp. 206-221; Bruce Wilkinson, Canada's International Trade: An Analysis of Recent Trends (Pri-vate Planning Association of Canada, 1968). 8 Secondly, c r u c i a l to the Heckscher-Ohlin theorem and the Samuelson-Stolper corollary i s the assumption that the pattern of industry factor i n -t e n s i t i e s i s a universal one. If "factor i n t e n s i t y reversals" exist — i . e . , i f , as a result of differences i n factor cost r a t i o s among countries, sub-s t a n t i a l factor substitution occurs — r e l a t i v e factor endowments cannot be a guide to comparative advantage. Where differences i n factor p r i c e r a t i o s exist economists would normally expect factor substitution to take place, but i t i s a c r u c i a l assumption i n the Heckscher-Ohlin theorem that they do not occur. Extensive study has suggested that the ranking of industries by factor i n t e n s i t y does not change s i g n i f i c a n t l y i n i n t e r -national comparisons.^ , A t h i r d point i s that although Ohlin distinguished three primary factors of production — land, labour and c a p i t a l — and allowed for q u a l i -t a t i v e differences i n the f i r s t two of these, most work since, both theo-r e t i c a l and empirical, has considered only two factors, they being uniform i n quality — labour and c a p i t a l . The Samuelson-Stolper theorem, when ex-Hal B. Lary, Imports of Manufactures from Less Developed Countries (New York: National Bureau of Economic Research, 1968), pp. 51-85; William P. Travis, The Theory of Trade and Protection (Cambridge, Mass.: Harvard University Press, 1964), pp. 191-194. B. S. Minhas concludes i n his An In-ternational Comparison of Factor Costs and. Factor Use (Amsterdam: North Holland, 1963), pp. 35-42, that factor i n t e n s i t y reversals do occur, how-ever. He bases t h i s conclusion on his findings where "d i r e c t - p l u s - d i r e c t " factor inputs are used, and where agriculture i s included. Using only direct inputs (see my comments below i n t h i s chapter) and excluding a g r i -culture substantially improves his rank correlations of international com-parisons, and suggests that factor substitution e l a s t i c i t i e s are r e l a t i v e l y s i m i l a r i n a l l industries. 9 amining more than two factors, presented rather inconclusive results. Recent studies have attempted to recognize both natural resources and the educ a t i o n - s k i l l component ( i . e . , the investment i n human capital) of the labour force as additional primary inputs."^ The Approach to Factor Intensity The factor proportions theorem and i t s corollary have suggested that protection w i l l be biased i n favour of those industries which use r e l a t i v e l y greater amounts of the scarce factor among primary inputs. Two problems"arise i n determining factor i n t e n s i t i e s , namely, what are the relevant primary factors of production, and how i s r e l a t i v e i n t e n s i t y to be measured. 1. Primary Input Factors. Previous attempts to measure primary factor i n t e n s i t i e s i n trade patterns have f a i l e d to i d e n t i f y a l l the p r i -mary factor endowments which are relevant i n trade. Primary factors are defined as those production inputs which are r e l a t i v e l y immobile and hence The i n i t i a l Samuelson-Stolper model was a two factor input, two commodity case. Introducing three or more commodities did not seriously affect the argument. However, with the introduction of more than two factors, the results are ambiguous because of the diverse pattern of complementarity and competitiveness which emerges. See Stolper and Samuelson, op. cit., p. 72. J. Vanek, The Natural Resource Content of U.S. Foreign Trade 1870 - 1955 (Cambridge, Mass.: Harvard University Press, 1963); Donald B. Keesing, "Labour S k i l l s and International Trade: Evaluating Many Trade Flows With a Single Measuring Device," Review of Economics and Statistics, XLVII (August, 1964), pp. 287-293; Bruce Wilkinson, op. cit. 1 0 n o n - t r a d e a b l e . T h e y a r e t h u s t o b e d i s t i n g u i s h e d f r o m i n t e r n a t i o n a l l y t r a d e d m a t e r i a l i n p u t s . F o u r p r o d u c t i o n f a c t o r s s e e m r e l e v a n t i n t h e m a n u f a c t u r i n g s e c t o r . T r a d i t i o n a l l y , t w o f a c t o r s , p h y s i c a l c a p i t a l a n d h o m o g e n e o u s l a b o u r h a v e b e e n i d e n t i f i e d . A t h i r d , t h e e d u c a t i o n - s k i l l c o m p o n e n t o f l a b o u r , o r h u m a n c a p i t a l h a s r e c e i v e d i n c r e a s e d e m p h a s i s i n t h e l i t e r a t u r e , a n d w i l l b e i d e n t i f i e d h e r e . A n d f i n a l l y , t i i e ^ r e l e -v a n c e o f r e s o u r c e s a s a p r i m a r y i n p u t i n m a n u f a c t u r i n g w i l l b e c o n s i d e r e d . 2. R e l a t i v e F a c t o r I n t e n s i t y . F o l l o w i n g t h e S a m u e l s o n - S t o l p e r m o d e l w h i c h c o n s i d e r s o n l y p r i m a r y i n p u t s a s r e l e v a n t i n t h e p r o d u c t i o n p r o c e s s , l a b o u r i n t e n s i t y w i l l b e d e f i n e d a s a n i n d u s t r y ' s u s e o f l a b o u r r e l a t i v e t o t h e o t h e r p r i m a r y f a c t o r s T h u s a n i n d u s t r y ' s p h y s i c a l c a p i t a l - l a b o u r i n t e n s i t y i s m e a s u r e d a s t h e p h y s i c a l c a p i t a l r e q u i r e m e n t s p e r e m p l o y e e i n a g i v e n i n d u s t r y . T h a t i n d u s t r y c a n b e d e f i n e d a s p h y s i -c a l c a p i t a l - l a b o u r i n t e n s i v e i f t h e p h y s i c a l c a p i t a l u t i l i z e d i n t h a t i n -d u s t r y p e r u n i t o f l a b o u r i s a b o v e t h e a v e r a g e f o r a l l m a n u f a c t u r i n g . I n a s i m i l a r w a y , a n i n d u s t r y c a n b e h u m a n c a p i t a l - l a b o u r o r r e s o u r c e - l a b o u r i n t e n s i v e i f t h e r e l a t i v e u s e o f e i t h e r o f t h o s e f a c t o r s i s a b o v e t h e a v e r -a g e f o r a l l m a n u f a c t u r i n g . F u r t h e r m o r e , a n i n d u s t r y c a n b e i n t e n s i v e i n I n t h e c l a s s i c a l l i t e r a t u r e a n i n d u s t r y w a s i n t e n s i v e i n t h e u s e o f o n e f a c t o r i f i t e m p l o y e d m o r e o f t h a t f a c t o r t h a n a n o t h e r . S u c h a n a p p r o a c h w a s a m b i g u o u s , h o w e v e r , s i n c e i t g i v e s n o c o n s i d e r a t i o n t o t h e f a c t o r e n d o w m e n t s o f a n e c o n o m y , a n d c o n c e i v a b l y a l l o f i t s i n d u s t r i e s c o u l d b e i n t e n s i v e i n t h a t o n e f a c t o r . S o m e r e c e n t s t u d i e s o f t h e U . S . t a r i f f ( n a m e l y V a c c a r a , B e l a s s a , a n d B a s e v i ) h a v e c o n s i d e r e d > i n d u s t r i e s a s i n t e n s i v e i n a f a c t o r i f t h e u s e o f t h a t f a c t o r r e l a t i v e t o t h e v a l u e o f t o t a l o u t p u t f o r t h e i n d u s t r y e x c e e d e d t h e a v e r a g e f o r a l l m a n u f a c t u r -i n g . W h i l e t h i s p r o c e d u r e m a y i n d i c a t e i n d u s t r i e s w h i c h a r e r e l a t i v e l y h e a v y u s e r s o f a p a r t i c u l a r f a c t o r , i t g i v e s n o i n d i c a t i o n o f t h e r o l e o f t h a t f a c t o r r e l a t i v e t o o t h e r p r i m a r y f a c t o r s . C o n c e i v a b l y a n i n d u s -t r y w h i c h w a s l a b o u r i n t e n s i v e b y s u c h a p r o c e d u r e c o u l d a l s o b e c a p i t a l i n t e n s i v e . 1 1 t h e u s e o f t o t a l c a p i t a l a n d r e s o u r c e s r e l a t i v e t o l a b o u r i f t h e t o t a l o f h u m a n c a p i t a l , p h y s i c a l c a p i t a l , a n d r e s o u r c e p r o d u c t s p e r e m p l o y e e i s a b o v e t h e a v e r a g e o f a l l m a n u f a c t u r i n g . T h i s s t u d y w i l l r e f e r t o p h y s i c a l , c a p i t a l - l a b o u r , h u m a n c a p i t a l -l a b o u r , a n d r e s o u r c e - l a b o u r i n t e n s i t i e s , a s w e l l a s c o m b i n a t i o n s ^ ^ t h e s e t h r e e . I t s h o u l d b e n o t e d t h a t a n i n d u s t r y w h i c h i s n o t p h y s i c a l c a p i t a l -l a b o u r i n t e n s i v e i s b e l o w t h e a v e r a g e i n t h e u s e o f p h y s i c a l c a p i t a l r e l a -t i v e t o l a b o u r , a n d c o u l d c o n v e r s e l y b e c o n s i d e r e d a s l a b o u r i n t e n s i v e r e l a t i v e t o p h y s i c a l c a p i t a l . O n e f u r t h e r p o i n t . I t i s a p p a r e n t f r o m t h e a b o v e t h a t a n i n d u s -t r y c a n b e i n t e n s i v e i n t h e u s e o f m o r e t h a n o n e p r i m a r y f a c t o r . T h i s i s a r e s u l t o f o u r p a r t i c u l a r i n t e r e s t i n d e t e r m i n i n g t h e r e l a t i o n s h i p b e -t w e e n t h e p r i m a r y f a c t o r l a b o u r a n d t h e o t h e r p r i m a r y f a c t o r s . D e f i n i n g f a c t o r i n t e n s i t i e s i n t h e a b o v e m a n n e r w i l l e n a b l e u s t o d e t e r m i n e w h i c h a m o n g t h e p r i m a r y f a c t o r s h a v e b e e n a f f e c t e d b y t a r i f f p o l i c y . P h y s i c a l a n d H u m a n C a p i t a l I n t e n s i t y T h e a p p r o a c h t a k e n t o m e a s u r i n g p h y s i c a l a n d h u m a n c a p i t a l - l a b o u r 1 2 i n t e n s i t i e s i s t h a t d e v e l o p e d b y H a l B . L a r y i n 1 9 6 8 a n d u s e d s i m u l t a n -1 3 e o u s l y b y B r u c e W i l k i n s o n i n h i s s t u d y o f C a n a d i a n t r a d e p a t t e r n s . I t i s k n o w n a s t h e " v a l u e a d d e d " a p p r o a c h , a n d h a s t h e a d v a n t a g e o v e r t r a d i t i o n -a l f a c t o r i n t e n s i t y t e c h n i q u e s o f b e i n g a b l e t o d i s t i n g u i s h r e a d i l y m e a s u r e s 1 2 r L a r y , op. cit. 13 W i l k i n s o n , op. cit. 12 of both p h y s i c a l c a p i t a l and human s k i l l endowments i n an industry. In essence the "value added" concept i s a "flow of s e r v i c e s " approach as opposed to the conventional "stock" methods used by Leontief and others. Using t h i s technique one can give a more consistent measure to the c o n t r i b u t i o n of the various shares provided by the stock of the primary f a c t o r s , labour, human c a p i t a l , and p h y s i c a l c a p i t a l , in\e^ach i n -dustry. In t h i s way, then, the "flow" approach acts as a proxy f o r the stock of human s k i l l s and tangible c a p i t a l required i n a productive pro-cess. 14 The "value added" concept consists of two elements. There i s a wages and s a l a r i e s share (hereafter Wages Value Added) r e f l e c t i n g the flow of payments to labour f o r i t s s k i l l endowments and the remainder (hereafter the Non-Wage Value Added) r e f l e c t i n g the flow of payments f o r services received from ph y s i c a l c a p i t a l . If we consider "labour" to con-s i s t of homogeneous workers i n whom c a p i t a l i n the form of education and t r a i n i n g has been invested, then the Wages Value Added per employee ( i . e . , WVA divided by the t o t a l employment i n a given industry, namely the aver-age wage) w i l l be an i n d i c a t o r of the stock of education and s k i l l s possessed by labour i n that industry. The stock of labour know-how represents an i n -vestment i n human c a p i t a l and thus average wages can act as a proxy f o r the human c a p i t a l - l a b o u r i n t e n s i t y of i n d u s t r i e s . While various f a c t o r s may 15 influence average earnings and hence leave t h i s approach somewhat i n 14 "Value added" i s the d i f f e r e n c e between the value of t o t a l ship-ments and the value of material inputs used. ^ I n a d d i t i o n to formal education and t r a i n i n g on the job, union strength i n concentrated i n d u s t r i e s or the rents to workers with unique s k i l l s may contribute to differences i n average wages. Regional immobility 13 doubt, studies by Wilkinson, B a l l , and Lary"^ have shown a close corre-l a t i o n between average wage l e v e l s and measures of education and s k i l l attainment. An industry then has high e d u c a t i o n - s k i l l requirements when the WVA per employee i s high r e l a t i v e to other manufacturing i n d u s t r i e s , and r e l a t i v e l y simple requirements when that r a t i o i s r e l a t i v e l y low. Using average l e v e l s of labour income i n an industry as a p\eocy f o r human capi t a l - l a b o u r i n t e n s i t y there i s an opportunity to consider q u a l i t a t i v e d ifferences i n labour input. The Non-wage Value Added share i s an i n d i c a t o r of the flow of ser-vi c e s received from a stock of ph y s i c a l c a p i t a l . Using the measurement of "flow" as a proxy f o r the "stock" i s preferable to the conventional e s t i -mations of stocks of p h y s i c a l c a p i t a l , because of the d i f f i c u l t i e s i n meas-uring the r e a l contributing stock i n any production process over any p a r t i c -u l a r period of time."'"'7 Both Wilkinson and Lary found close c o r r e l a t i o n be-tween the stock of ph y s i c a l assets and the Non-Wage Value Added f o r indus-may a f f e c t wage d i f f e r e n t i a l s . Furthermore, wages w i l l represent more than returns to human c a p i t a l , a portion w i l l represent the return to u n s k i l l e d labour. Since a rank c o r r e l a t i o n approach i s being used t h i s w i l l not a f f e c t the a n a l y s i s . I t i s assumed that the return to i n f l u -ences other than the human c a p i t a l input i s constant throughout a l l i n -d u s t r i e s . The advantage of the ranking approach i s that such monotonic conversions are p o s s i b l e i n the data without disturbing the a n a l y s i s . "^Wilkinson, op. cit., p. 91; B a l l , op. cit., p. 186; Lary, op. cit., pp. 35-40. "^Attempts to measure c a p i t a l stocks must face the problem of de-p r e c i a t i o n . On the assumption that a l l c a p i t a l i s r e c e i v i n g a return equal to i t s marginal product (or at l e a s t that any d i s t o r t i o n i s equally d i s t r i b u t e d ) and that these returns are equal everywhere, then the flow approach should give a good estimate of r e l a t i v e c a p i t a l requirements. 14 t r i e s i n Canada and the U.S. Thus, d i v i d i n g the non-wage por t i o n of "value added" by the t o t a l employment i n an industry to obtain the NWVA per employee, there i s a measure of p h y s i c a l c a p i t a l • i n t e n s i t y r e l a t i v e to labour ( i . e . , a p h y s i c a l c a p i t a l - l a b o u r r a t i o ) for each industry. Obvious problems are associated with using the "value added" approach as measures of f a c t o r i n t e n s i t i e s . The assumption that i n t e r -industry comparisons of value added per employee are an i n d i c a t i o n of d i f f e r e n t i n t e n s i t i e s i n the flow of services from various input factors implies that a l l markets f o r inputs and outputs are f u l l y competitive, 19 such that each input receives a return equal to i t s marginal product. Thus labour receives a return i n accord with i t s content of c a p i t a l i n -vestment, and the rate of return to c a p i t a l , l e s s r i s k considerations, w i l l be the same through a l l i n d u s t r i e s . Of course, t h i s l e v e l of econo-mic e f f i c i e n c y does not e x i s t , and wage and p r o f i t d i f f e r e n t i a l s do a r i s e i n various i n d u s t r i e s . As was indicated above, however, evidence suggests that Wage and Non-Wage Value Added shares do o f f e r reasonably good proxies f o r the f a c t o r requirements of various i n d u s t r i e s i n terms of the q u a l i t y of labour and p h y s i c a l c a p i t a l i n the production process. I f human capital-labour and p h y s i c a l c a p i t a l - l a b o u r i n t e n s i t i e s represent the requirements of two forms of c a p i t a l per employee i n an i n -Wilkinson, op. cit., pp. 92-93; Lary, op. cit., pp. 40-46. It i s assumed that returns to homogeneous factors are equiva-l e n t between i n d u s t r i e s . This could also occur when equal layers of monopoly e x i s t i n a l l i n d u s t r i e s . 1 5 d u s t r y , t h e y c a n b e c o m b i n e d t o m e a s u r e t o t a l c a p i t a l r e q u i r e m e n t s p e r 2 0 e m p l o y e e . T h u s V a l u e A d d e d p e r e m p l o y e e a c t s a s a p r o x y f o r a n o v e r -a l l i n t e n s i t y m e a s u r e , t h a t o f t o t a l c a p i t a l r e l a t i v e t o l a b o u r . T h e R o l e o f N a t u r a l R e s o u r c e s T h e r o l e o f n a t u r a l r e s o u r c e s i n d e t e r m i n i n g i n t e r n a t i o n a l t r a d e p a t t e r n s i n m a n u f a c t u r e d p r o d u c t s i s a m b i g u o u s . I n i t i a l l y i t w o u l d a p p e a r t h a t r e s o u r c e f a c t o r s a r e h a r d l y r e l e v a n t w h e r e o u r p u r p o s e i s t o c o n s i d e r p r i m a r y f a c t o r i n t e n s i t i e s i n d i f f e r e n t m a n u f a c t u r i n g i n d u s t r i e s . R e s o u r c e s t h e m s e l v e s ( i . e . , a g r i c u l t u r a l l a n d , f o r e s t s , m i n e s a n d t h e s e a s ) a r e n o t a d i r e c t i n p u t i n t o t h e m a n u f a c T r u n i n g s e c t o r , a n d a s s u c h s h o u l d n o t a f f e c t t h e p a t t e r n o f c o m p a r a t i v e a d v a n t a g e i n m a n u f a c t u r e s p r o d u c t i o n . I f t h o s e p r o d u c t s w h i c h a r e d e r i v e d f r o m r e s o u r c e s a r e f r e e l y t r a d e d i n t h e i n t e r -2 1 n a t i o n a l m a r k e t , s u c h " r e s o u r c e p r o d u c t s " s h o u l d e n t e r a s o t h e r m a t e r i a l 2 0 M . A . D i a b a r g u e s t h a t t h e c a p i t a l r e p r e s e n t e d b y t h e t r a i n i n g o f w o r k e r s s h o u l d b e a d d e d t o t h e p h y s i c a l c a p i t a l w i t h w h i c h t h e y w o r k i n d e -r i v i n g e s t i m a t e s o f t h e t r u e c a p i t a l i n t e n s i t y o f p r o c e s s e s o r g o o d s , t o w h i c h T r a v i s a g r e e s . T r a v i s , The Theory of Trade and Protection, p . 5 1 , c i t i n g M . A . D i a b , The United States Capital Position and the Structure of Foreign Trade ( A m s t e r d a m : N o r t h H o l l a n d , 1 9 5 6 ) , p p . 5 2 - 5 3 . T h i s c o m -p l i e s w i t h t h e a p p r o a c h t a k e n b y L a r y , op. cit., p . 8 6 , w h i c h i s t o t r e a t b o t h f o r m s a s o n e . T h e y r e p r e s e n t t w o f o r m s o f p r i m a r y i n p u t a n d t o g e t h e r c a n b e t r e a t e d a s a t o t a l o f c a p i t a l i n p u t s , b u t c a r e m u s t b e t a k e n t o r e c o g n i z e t h e i n t r i n s i c d i f f e r e n c e s . T h e i n v e s t m e n t d e c i s i o n s i n v o l v e d i n a c c u m u l a t i n g e d u c a t i o n a r e d i f f e r e n t f r o m t h o s e o f p h y s i c a l c a p i t a l , i f o n l y b e c a u s e t h e m o n e t a r y r e t u r n s t o t h e l a t t e r a r e m o r e c l e a r l y u n d e r -s t o o d . H u m a n c a p i t a l i s t i e d t o t h o s e u n i t s o f l a b o u r i n w h i c h e d u c a t i o n i s i n v e s t e d , a n d b e c a u s e o f o t h e r p s y c h i c r e t u r n s t o l a b o u r t e n d s t o b e l e s s m o b i l e b e t w e e n b o t h i n d u s t r i e s a n d r e g i o n s t h a n i s p h y s i c a l c a p i t a l . 2 1 ' J. V a n e k u s e d t h e t e r m " r e s o u r c e p r o d u c t s " a s h i s p r o x y m e a s u r e o f r e s o u r c e f a c t o r i n p u t s i n h i s The Natural Resource Content of U.S. For-eign Trade 1870 -1955, p p . 7 - 1 1 . I d e a l l y w e a r e i n t e r e s t e d i n t h e c o n -t r i b u t i o n o f n a t u r a l r e s o u r c e s i n p r o d u c i n g a g i v e n b i l l o f r a w m a t e r i a l s , t h u s i n t h e p r o d u c t i v e s e r v i c e s y i e l d e d b y l a n d ( i n i t s e c o n o m i c s e n s e ) . ( c o n t i n u e d ) 16 inputs i n the production process. Given that resource products compete in t e r n a t i o n a l l y their prices are externally determined, and there i s no opportunity for a s h i f t i n g of r e l a t i v e returns between them and another factor. The burden or gains of the t a r i f f can only be shifted among non-traded production factors. The objection to this approach i s that to a large degree resource products, by the i r perishable or bulky nature, are not e a s i l y mobile i n -ternationally. Processing of these products may be more desirable at or close-by the sight of t h e i r extraction or growth. To the extent that resource products are non-tradeabJLe then there i s j u s t i f i c a t i o n i n t r e a t -22 ing them as another primary factor i n the production process. The number of such resource products i s l i k e l y to be l i m i t e d . In his analysis of this problem, Lary found that outside of raw food materials there are only a few industries which are closely t i e d to l o c a l sources of 23 supply. An analysis of resource products i n the Canadian economy suggests Since the "economic rent" of a l l land used i n production of raw materials i s generally not measurable, Vanek chose to use the "value of resource pro-ducts" as a proxy. When looking at inter-industry comparisons we can assume that the true resource content i s roughly proportional, though l e s s , than the "value of resource products." 22 Any s h i f t i n g of returns w i l l be borne by the owners of the resource factor from which the "resource products" were extracted. Resources tend to be owned by the government, which represents the people. Any s h i f t i n g of re-turns between resources and labour does not necessarily imply a gain to the l a t t e r . This argument i s more f u l l y developed i n J . H. Young, Canadian Commercial Policy (Ottawa: Queen's P r i n t e r , 1957), p. 91. Lary, op. cit., p. 50. 1 7 a s i m i l a r f i n d i n g . T a b l e 1 p r e s e n t s 1 9 6 1 d o m e s t i c o u t p u t , e x p o r t a n d i m p o r t d a t a f o r 2 3 r e s o u r c e p r o d u c t s . T r a d e d g o o d s a c c o u n t f o r l e s s t h a n 1 0 p e r c e n t o f t o t a l d o m e s t i c o u t p u t f o r o n l y s i x p r o d u c t s . T h e s e s i x a c c o u n t , h o w e v e r , f o r a l m o s t 5 0 p e r c e n t o f t h e t o t a l d o m e s t i c o u t -p u t o f r e s o u r c e p r o d u c t s . T A B L E - 1 C A N A D I A N T R A D E I N R E S O U R C E P R O D U C T S , 1 9 6 1 T O T A L E X P O R T S & I M P O R T S R E S O U R C E P R O D U C T E X P O R T S I M P O R T S O U T P U T % O F O U T P U T C$000) 1 ( $ 0 0 0 ) ( $ 0 0 0 ) (%) 1 L i v e A n i m a l s 6 6 . 2 6 . 2 1 1 0 8 . 3 7 2 G r a i n 6 2 4 . 5 4 0 . 6 4 6 8 . 6 1 4 2 3 F r u i t s , N u t s , & V e g . 1 9 . 0 1 2 2 . 4 2 4 7 . 1 5 7 4 M i l k , U n p r o c e s s e d . 0 . 0 5 2 3 . 3 0 5 E g g s i n t h e S h e l l 2 . 3 4 . 1 1 5 4 . 6 4 6 T o b a c c o . 0 . 0 1 0 4 . 4 0 7 O i l S e e d s 6 6 . 0 4 4 . 8 7 8 . 5 1 4 1 8 A g r i c . P r o d u c t s n . e . s . 2 5 . 2 3 1 . 6 1 2 8 . 5 4 4 9 F o r e s t P r o d u c t s 4 2 . 9 1 4 . 7 8 3 8 . 1 7 1 0 F i s h L a n d i n g s 1 3 . 6 4 . 2 1 1 2 . 0 1 6 1 1 F u r s , S k i n s , e x c l . R a n c h 1 0 . 3 1 3 . 8 1 1 . 1 2 1 7 1 2 I r o n O r e 1 2 0 . 7 4 8 . 7 1 6 2 . 6 1 0 4 1 3 M e t a l O r e s , n . e . s . 4 2 . 0 7 6 . 1 5 9 5 . 5 2 0 1 4 R a d i o a c t i v e O r e s 2 0 0 . 1 . 0 2 7 1 . 9 74 1 5 G o l d O r e s 1 5 6 . 3 1 . 7 1 6 2 . 6 9 7 1 6 C o a l 8 . 1 1 1 9 . 4 6 8 . 5 1 8 6 1 7 C r u d e M i n e r a l O i l 1 6 2 . 8 3 5 7 . 0 5 3 1 . 4 9 8 1 8 N a t u r a l G a s 4 1 . 7 2 . 9 6 8 . 3 6 5 1 9 P r o d u c t s r e l . t o M i n e s 4 . 0 8 . 6 2 0 1 . 8 6 2 0 A s b e s t o s , F i b r e s 1 2 8 . 5 1 . 3 1 3 2 . 8 9 8 2 1 C l a y a n d G y p s u m 7 . 3 7 . 2 1 5 0 2 2 S a l t 2 . 2 1 . 5 2 1 . 0 1 8 2 3 C r u d e M i n e r a l s , n . e . s . 1 5 . 0 4 6 . 4 1 1 2 . 2 5 5 T o t a l 1 7 5 8 . 7 9 5 5 . 6 6 1 6 2 . 8 4 4 S o u r c e : D . B . S . : The Input-Output Structure of the Canadian Economy, V o l u m e I I ( D B S # 1 5 - 5 0 2 ) , T a b l e 1 3 , 1 9 6 1 . 18 Inclusion of resource products among the non-trade primary inputs may throw some l i g h t on t h e i r r o l e i n determining trade patterns. Other 24 work has suggested that resource products are i n f l u e n t i a l , but resource products have not been previously included i n studies of the present type. Using the resource product i n t e n s i t y technique developed here we can ob-serve the influence of t h i s f a c t o r on t a r i f f s . Using "resource product" inputs as a proxy f o r the r o l e of resour-ces a measure of resource-labour i n t e n s i t y can be obtained. Resource pro-duct input data i s a v a i l a b l e on /an industry b a s i s , and when divided by the t o t a l employment of an industryJ a resource-labour i n t e n s i t y can be c a l c u -l a t e d which i s analagous to the measures of human capital-labour and physi-r c a l c a p i t a l - l a b o u r i n t e n s i t y . Industries which use large amounts of r e -source products per employee are then considered resource i n t e n s i v e r e l a -t i v e to labour. A q u a l i f i c a t i o n worth noting at t h i s juncture i s that resource products are assumed to be a homogenous set of input f a c t o r s . This assump-t i o n i s hardly v a l i d i n l i g h t of the wide range of inputs which are included i n t h i s category. Furthermore, i t was observed i n Table 1 that there i s a su b s t a n t i a l range i n the degree to which each type of resource product can be considered as non-traded. However, t r e a t i n g t h i s group as a si n g l e u n i -form input may provide some i n s i g h t into the r o l e of resources i n manufac-tures trade, ) Wilkinson, f o r example, points to the important r o l e of primary manufacturing i n d u s t r i e s among Canadian exports. Op. cit., p. 100. 19 Indirect Primary Inputs and Factor I n t e n s i t i e s In h i s survey of commercial p o l i c y i n the United States. J . P. Travis c r i t i c i z e s the Vaccara study of U.S. t a r i f f s and f a c t o r i n t e n s i t i e s for i t s "unavoidable use of d i r e c t , rather than d i r e c t - p l u s - i n d i r e c t , l a b -25 our c o e f f i c i e n t s . " While the Vaccara study i s open to a number of c r i -26 t i c i s m s , t h i s i s not one of them. The use of i n d i r e c t inputs, i . e . , p r i -mary inputs i n t o products which enter the production function of a second industry as m a t e r i a l inputs, i s not relevant to the question of f a c t o r i n -t e n s i t i e s i n d i f f e r e n t manufacturing i n d u s t r i e s where material inputs are 27 i n t e r n a t i o n a l l y mobile. Factor i n t e n s i t i e s obtained by such a measurement would consider the production process from raw material to f i n a l product as one rather than a s e r i e s of f a b r i c a t i o n . But as long as material inputs compete i n an i n t e r n a t i o n a l market then the p r o t e c t i o n of an industry w i l l apply only to those primary factors d i r e c t l y involved i n i t s productive process, and 25 T r a v i s , The Theory of Trade and Protection, p. 192. To be f a i r to T r a v i s , he also argued against the use of e f f e c t i v e rates of production. When nominal rates are used he argues r i g h t l y that commodities should be considered as being produced from the ground up, rather than i n a s e r i e s of separate stages. Thus " d i r e c t - p l u s ^ - i n d i r e c t " factor measurement would be appropriate. This point i s considered further i n the next chapter. 26 The yaccara study involves a number of weaknesses. Her approach to the question of " p r o t e c t i o n , " f or example, i s one which i s taken up i n the next chapter. Although Vaccara did not use i n d i r e c t inputs she did consider the i n c l u s i o n of such inputs as the " i d e a l , " which i t was impos-s i b l e to a t t a i n . Vaccara, op. cit,, p. 50. 27 Factor i n t e n s i t i e s c a l c ulated using i n d i r e c t inputs would bias the production function at any stage of f a b r i c a t i o n . Minhas suggests a s i g n i f i -cant d i f f e r e n c e i n rankings of i n d u s t r i e s when " d i r e c t ^ p l u s - i n d i r e c t " inputs are used. Op. cit., p. 40. 20 a n y i n c r e a s e i n r e t u r n s w i l l a c c r u e o n l y t o t h o s e d i r e c t i n p u t s . A s L a r y i p o i n t s o u t , t h e i n c l u s i o n o f i n d i r e c t f a c t o r i n p u t s " f i t s i l l w i t h t h e v e r y 28 p u r p o s e o f e x p l a i n i n g i n t e r n a t i o n a l s p e c i a l i z a t i o n a n d t r a d e . " E m p i r i c a l R e s u l t s O n e h u n d r e d a n d t w e n t y - o n e i n d u s t r i e s w e r e d i s t i n g u i s h e d . T h e d a t a u s e d r e p r e s e n t s 1963 f i g u r e s . T h e i n d u s t r y c l a s s i f i c a t i o n w a s i d e n t i c a l t o t h a t 29 u s e d i n t h e W i l k i n s o n a n d M e l v i n s t u d y o f e f f e c t i v e p r o t e c t i o n a n d c o n c u r s w i t h t h e D B S M a n u f a c t u r i n g I n d u s t r i e s o f C a n a d a c e n s u s f r o m w h i c h " V a l u e A d d e d " 30 a n d " E m p l o y m e n t " d a t a w e r e o b t a i n e d . W h i l e 133 i n d u s t r i e s w e r e i n i t i a l l y a v a i l a b l e i n t h e M e l v i n - W i l k i n s o n s t u d y a n d f r o m t h e D B S d a t a , t h e d i f f i c u l t y o f a t t r i b u t i n g r e s o u r c e p r o d u c t i n p u t s t o t h e c a t e g o r y o f M i s c e l l a n e o u s I n d u s -t r i e s n e c e s s i t a t e d t h e e x c l u s i o n o f e i g h t i n d u s t r i e s ( J e w e l l r y , V e n e t i a n b l i n d s , P l a s t i c f a b r i c a t o r s , T y p e w r i t e r s u p p l i e s , P e n a n d p e n c i l , O p t h a l m i c g o o d s , C l o c k a n d w a t c h , a n d B r o o m , b r u s h , m o p ) . F o u r o t h e r i n d u s t r y g r o u p s , B r e w e r i e s , D i s -t i l l e r i e s , W i n e r i e s , a n d T o b a c c o P r o d u c t s , w e r e e x c l u d e d b e c a u s e o f t h e s p e c i a l 31 n a t u r e o f t a r i f f s o n t h e s e c o m m o d i t i e s . 28 L a r y , op. cit. 3 p . 48. 29 J a m e s R . M e l v i n a n d B r u c e W . W i l k i n s o n , Effective Protection in the Canadian Economy, S p e c i a l S t u d y - N o . 9, E c o n o m i c C o u n c i l o f C a n a d a ( O t t a w a : Queen's P r i n t e r , 1968), p p . 21-28. 30 T w o v a l u e a d d e d f i g u r e s a p p e a r i n t h i s d a t a — v a l u e a d d e d i n m a n u -f a c t u r i n g a c t i v i t y o n l y a n d total v a l u e a d d e d ( w h i c h i n c l u d e s n o n - m a n u f a c t u r i n g a c t i v i t i e s ) . C o n t r a r y t o t h e a p p r o a c h t a k e n b y W i l k i n s o n , op. cit. 3 t h e s e c o n d , t o t a l v a l u e a d d e d , h a s b e e n u s e d h e r e . G e n e r a l l y s l i g h t l y l a r g e r , t h i s m e a s u r e r e f l e c t s t h e a c t i v i t i e s o f t h e i n d u s t r y a s a w h o l e , i n c l u d i n g t h a t p o r t i o n o f i t s o p e r a t i o n w h i c h , w h i l e o v e r h e a d , i s n o n e t h e l e s s a v a l i d p a r t o f t h e i n d u s -t r y . F u r t h e r , s i n c e e m p l o y m e n t a n d s a l a r i e s a r e o n l y r e p o r t e d o n t o t a l a c t i v i t y t h i s a p p r o a c h m a k e s m o r e p r a c t i c a l s e n s e . A t a n y r a t e , t h e d i f f e r e n c e s a r e n o t s u b s t a n t i a l . 31 D u t i e s o n t h e s e i t e m s t a k e t h e f o r m o f a l u x u r y t a x . T h u s , t a r i f f s m a y n o t r e f l e c t t h e " g e n e r a l p r i n c i p l e " w h i c h m i g h t a p p l y t o o t h e r i m p o r t s . 21 R e s o u r c e p r o d u c t d a t a w a s o b t a i n e d f r o m t h e 1 9 6 1 I n p u t - O u t p u t T a b l e s , a n d 3 2 a d j u s t e d t o c o n c u r w i t h 1 9 6 3 d a t a . F a c t o r i n t e n s i t y r e s u l t s a r e p r e s e n t e d i n T a b l e 2 . T h e s e f i g u r e s h a v e b e e n i n d e x e d b y d i v i d i n g t h e r a - t i o s o b t a i n e d b y t h e a v e r a g e f o r a l l 3 3 m a n u f a c t u r i n g . T h e f o u r t h c o l u m n p r e s e n t s i n t e n s i t y m e a s u r e s f o r b o t h 3 2 " R e s o u r c e p r o d u c t " d a t a w a s g a t h e r e d f r o m t h e r e c e n t l y p u b l i s h e d Input-Output Tables for the Canadian Economy ( D B S 1 5 - 5 0 2 ) . T w o p r o b l e m s a r o s e c o n c e r n i n g t h i s d a t a . F i r s t l y , t h e l a r g e s t o f t h e t a b l e s , T a b l e 1 3 , p r e s e n t i n g i n d u s t r y i n p u t s a n d o u t p u t s f o r 1 1 0 i n d u s t r i e s i n 1 9 6 1 w a s u s e d . A l a r g e n u m b e r o f t h e s e i n d u s t r i e s w e r e / i d e n t i c a l t o t h o s e w h i c h w e w e r e u s i n g f o r o t h e r d a t a . A n u m b e r , h o w e v e r , w e r e a g g r e g a t e s o f t w o o r m o r e o f o u r i n d u s t r i a l c l a s s e s . R a t h e r t h a n g r o u p o u r o t h e r c l a s s e s a p p r o p r i -a t e l y , a n d t h u s b e f a c e d w i t h t h e n e c e s s i t y o f a v e r a g i n g e f f e c t i v e a n d n o m i n a l t a r i f f r a t e s , i t w a s d e c i d e d t o a l l o c a t e a c c o r d i n g t o t h e s h a r e o f t o t a l s h i p m e n t s f r o m e a c h i n d u s t r y t h e r e s o u r c e i n p u t i n t o t h e a g g r e -g a t e d c l a s s . ( T h u s i f a n a g g r e g a t e d c l a s s c o n s i s t e d o f t w o i n d u s t r i e s b y o u r c l a s s i f i c a t i o n , o n e r e p r e s e n t i n g 9 0 p e r c e n t o f t h e t o t a l s h i p -m e n t s f r o m t h e t w o , t h e n 9 0 p e r c e n t o f t h e t o t a l r e s o u r c e i n p u t s w o u l d b e a l l o c a t e d t o t h a t i n d u s t r y ) . S e c o n d l y , d a t a p r e s e n t e d i n T a b l e 1 3 w a s f o r 1 9 6 1 , w h i l e o u r e m p l o y m e n t a n d v a l u e a d d e d d a t a w a s f o r 1 9 6 3 . I n a d d i t i o n t o c h a n g e s i n t h e v o l u m e o f p r o d u c t i o n , t h e r e i s t h e p r o b l e m o f p r i c e c h a n g e s . T o o v e r c o m e b o t h d i f f i c u l t i e s , r e s o u r c e i n p u t d a t a w a s a d j u s t e d a c c o r d i n g t o t h e r a t i o o f 1 9 6 3 v a l u e o f s h i p m e n t s t o t h e 1 9 6 1 v a l u e o f s h i p m e n t s . A s s u m i n g p r i c e c h a n g e s w e r e e v e n l y d i s t r i b u t e d , a n d n o c h a n g e i n t h e . r e s o u r c e s - o u t p u t r a t i o , t h i s i s a n a p p r o p r i a t e p r o c e d u r e . 33 T h u s f o r a n y p r i m a r y f a c t o r a n i n d e x f i g u r e a b o v e 1 . 0 0 d e n o t e s a n i n d u s t r y w h i c h i s r e l a t i v e l y i n t e n s i v e i n t h e u s e o f t h a t f a c t o r r e l a -t i v e t o l a b o u r , w h i l e a n i n d e x b e l o w 1 . 0 0 i n d i c a t e s t h a t l a b o u r i s i n t e n -s i v e r e l a t i v e t o t h a t f a c t o r . H e n c e i t i s p o s s i b l e t h a t s o m e i n d u s t r i e s w i l l b e i n t e n s i v e i n m o r e t h a n o n e f a c t o r r e l a t i v e t o l a b o u r , o r i n n o n e a t a l l , I n d u s t r y #1 i n T a b l e 2 ( B i s c u i t M f g . ) f o r e x a m p l e i s l a b o u r i n -t e n s i v e r e l a t i v e t o a l l o t l x e r p r i m a r y f a c t o r s , w h i l e I n d u s t r y //13 ( A n i m a l O i l s a n d F a t s ) i s i n t e n s i v e i n a l l p r i m a r y f a c t o r s r e l a t i v e t o l a b o u r . 22 forms of c a p i t a l combined r e l a t i v e to labour, while the f i n a l column measures the i n t e n s i t y of a l l three primary factors combined ( i . e . , 34 T o t a l C a p i t a l and Resources) r e l a t i v e to labour. Combined f a c t o r i n t e n s i t i e s r e l a t i v e to labour are cal c u l a t e d by adding the payments to the flow of services from each f a c t o r and d i v i d i n g by t o t a l employment. Thus "Total C a p i t a l and Resource-Labour" i n t e n s i t y i s the t o t a l of Wage Value Added, Non-Wage "Value Added, and Resource Pro-duct input divided by the t o t a l employment of a given industry. T A B L E 2 P R I M A R Y F A C T O R I N T E N S I T I E S R E L A T I V E T O L A B O U R O F C A N A D I A N M A N U F A C T U R I N G I N D U S T R I E S , 1 9 6 3 HUMAN P H Y S I C A L , T O T A L , T O T A L C A P I T A L & N O . I N D U S T R Y . C A P I T A L - L A B O U R 3 C A P I T A L - L A B O U R R E S O U R C E - L A B O U R 0 C A P I T A L - L A B O U R R E S O U R C E - L A B O U R 6 1 B i s c u i t M f g . 0 . 8 1 0 . 7 6 0 . 0 2 0 . 7 9 0 . 5 5 . 2 B a k e r i e s 0 . 8 0 0 . 6 0 0 . 0 2 0 . 7 0 0 . 4 9 3 B r e a k f a s t C e r e a l s 1 . 0 9 2 . 9 3 0 . 9 2 2 . 0 2 1 . 6 8 4 S o f t D r i n k s 0 . 8 9 1 . 2 2 0 . 0 0 1 . 0 5 0 . 7 3 5 D a i r y F a c t o r i e s 0 . 8 7 0 . 8 1 4 . 5 7 0 . 8 4 1 . 9 9 6 P r o c e s s C h e e s e 1 . 1 9 2 . 2 1 ^ 0 . 1 3 1 . 7 1 1 . 2 2 7 C o n f e c t i o n a r y 0 . 7 6 0 . 8 4 ^ \ 0 . 1 5 . 0 . 8 0 0 . 6 0 8 F e e d M f g . . 0 . 8 6 1 . 3 1 . 3 . 8 6 1 . 0 9 1 . 9 4 9 F l o u r M i l l s ' 0 . 9 7 1 . 2 1 9 . 1 0 1 . 0 9 3 . 5 6 1 0 F i s h P r o d u c t s 0 . 5 9 0 . 4 6 1 . 9 2 0 . 5 2 0 . 9 5 1 1 F r u i t , V e g e t a b l e c a n n e r s a n d p r e s e r v e s 0 . 7 5 1 . 1 0 1 . 0 2 0 . 9 3 0 . 9 6 1 2 M a c a r o n i 0 . 7 9 1 . 5 9 0 . 7 0 1 . 2 0 1 . 0 4 ; 1 3 A n i m a l O i l s a n d F a t s 1 . 0 6 2 . 1 4 4 . 2 8 1 . 6 1 2 . 4 3 ; 1 4 S a u s a g e a n d c a s i n g s 0 . 8 9 0 . 8 8 3 . 3 3 0 . 8 8 1 . 6 4 ; 15 S l a u g h t e r i n g a n d m e a t p a c k i n g 1 . 0 4 0 . 7 3 6 . 4 3 0 . 8 8 2 . 5 9 1 6 S u g a r R e f i n e r i e s 1 . 1 3 2 . 9 6 1 . 9 0 2 . 0 5 2 . 0 1 17 V e g e t a b l e O i l m i l l s 1 . 0 5 2 . 6 6 2 6 . 1 9 1 . 8 7 9 . 3 5 1 18 M i s c e l l a n e o u s f o o d 0 . 9 7 2 . 2 7 1 . 0 2 1 . 6 3 1 . 4 4 19 P o u l t r y p r o c e s s o r s 0 . 6 2 0 . 5 3 4 . 5 1 0 . 5 7 1 . 7 8 2 0 L e a t h e r t a n n e r i e s 0 . 9 0 0 . 5 6 0 . 0 4 0 . 7 3 0 . 5 2 T A B L E 2 ( C o n t i n u e d ) HUMAN P H Y S I C A L T O T A L T O T A L C A P I T A L & N O . I N D U S T R Y C A P I T A L - L A B O U R C A P I T A L - L A B O U R R E S O U R C E - L A B O U R C A P I T A L - L A B O U R R E S O U R C E - L A B O U R 2 1 S h o e f a c t o r i e s 0 . 6 7 0 . 3 0 0 . 0 0 0 . 4 8 0 . 3 3 2 2 B o o t a n d s h o e f i n d i n g s 0 . 6 5 0 . 4 1 0 . 0 0 0 . 5 3 0 . 3 7 2 3 L e a t h e r g l o v e s 0 . 5 8 0 . 3 6 0 . 0 0 0 . 4 7 0 . 3 2 2 4 M i s c e l l a n e o u s l e a t h e r p r o d u c t s 0 . 6 5 0 . 3 9 0 . 0 0 0 . 5 2 0 . 3 6 25 R u b b e r i n d u s t r i e s 1 . 0 1 0 . 8 3 ; 0 . 0 3 0 . 9 2 0 . 6 4 26 C a n v a s p r o d u c t s 0 . 6 7 0 . 5 1 0 . 0 0 0 . 5 9 0 . 4 1 2 7 C o r d a g e a n d t w i n e 0 . 8 7 0 . 8 0 0 . 0 2 0 . 8 4 0 . 5 8 2 8 C o t t o n a n d j u t e b a g 0 . 7 6 0 . 8 0 0 . 0 0 0 . 7 8 0 . 5 4 29 C o t t o n y a r n a n d c l o t h 0 . 7 6 0 . 6 3 0 . 0 2 0 . 7 0 0 . 4 9 3 0 N a r r o w f a b r i c m i l l s 0 . 7 3 , 0 . 5 7 0 . 0 1 0 . 6 5 0 . 4 5 3 1 S y n t h e t i c t e x t i l e s 0 . 8 8 1 . 1 4 \ 0 . 0 0 1 . 0 1 0 . 7 0 3 2 W o o l y a r n s 0 . 6 9 0 . 4 2 \ 0 . 1 6 0 . 5 5 0 . 4 3 33 W o o l c l o t h 0 . 7 5 0 . 5 0 0 . 1 4 0 . 6 3 0 . 4 8 3 4 P r e s s e d a n d p u n c h e d ( f e l t 0 . 9 4 0 . 5 0 0 . 0 1 0 . 7 2 0 . 5 0 3 5 L i n o l e u m a n d c o a t e d f a b r i c 1 . 0 4 0 . 9 7 0 . 0 4 1 . 0 0 0 . 7 1 3 6 E m b r o i d e r y , p l e a t i n g , e t c . 0 . 6 4 0 . 3 6 0 . 0 1 0 . 5 0 0 . 3 5 : 3 7 A u t o f a b r i c s 0 . 7 6 0 . 4 3 0 . 0 1 0 . 5 9 0 . 4 2 ' 3 8 M i s c e l l a n e o u s t e x t i l e s ' 0 . 7 7 0 . 7 9 0 . 0 1 0 . 7 8 0 . 5 5 39 F o u n d a t i o n g a r m e n t s 0 . 6 6 0 . 5 5 0 . 0 7 0 . 6 0 0 . 4 4 : 4 0 F u r g o o d s 0 . 9 3 0 . 7 3 ' 0 . 1 4 0 . 8 3 0 . 6 2 ; 4 1 K n i t t i n g m i l l s 0 . 6 4 0 . 4 6 0 . 0 1 0 . 5 5 0 . 3 8 4 2 H o s i e r y m i l l s 0 . 6 3 0 . 4 0 0 . 0 0 0 . 5 1 0 . 3 6 : 4 3 F a b r i c g l o v e s 0 . 4 8 0 . 2 7 0 . 0 5 0 . 4 1 0 . 3 0 ; 44 F i b r e p r e p a r i n g m i l l s 0 . 8 6 0 . 6 9 0 . 0 2 0 . 7 7 0 . 5 4 ; 4 5 T h r e a d m i l l s 0 . 7 9 0 . 8 5 0 . 0 1 0 . 8 2 0 . 5 7 \ NO TABLE 2 (Continued) HUMAN PHYSICAL TOTAL TOTAL CAPITAL & NO. INDUSTRY CAPITAL-LABOUR CAPITAL-LABOUR RESOURCE-LABOUR CAPITAL-LABOUR RESOURCE-LABOUR 46 Carpet, mat, and rug 0.80 0.87 0.02 0.83 0.58 47 Hardwood f l o o r i n g 0.71 0.53 0.03 0.62 0.44 48 Sawmills 0.88 0.65 1.54 0.76 1.00 49 Shingle m i l l s 1.10 0.63 1.56 0.86 1.08 50 Sash, door, and millwork 0.82 0.66 0.04 0.74 0.53 51 Veneer and plywood 0.88 0,56 1.26 0.72 0.89 52 Miscellaneous wood indust. 0.77 0.57 . 0.31 0.89 0.64 53 Wooden box 0.69 0.43 \ . 0.22 . 0.55 0.45 54 C o f f i n and casket 0.75 0.37 | 0.21 0.56 0.45 55 Household f u r n i t u r e 0.79 0.47 1 0.01 0.63 0.44 56 O f f i c e f u r n i t u r e 0.93 0.60 0.01 0.76 0.53 57 Miscellaneous f u r n i t u r e 0.83 0.53 0.01 0.68 0.47 58 Commercial p r i n t i n g 1.05 0.63 0.00 0.84 0.58 59 Platemaking, typesetting 1.25 0.51 0.00 0.87 0.60 60 Publishing ^ 0.99 1.74 0.00 1.37 0.95 61 Publishing and p r i n t i n g 1.11 0.85 0.00 0.98 0.68 62 Pulp and paper 1.23 1.84 1.57 1.54 1.55 63 Asphalt roofing 1.06 2.28 0.25 1.68 1.24 64 Misc. paper converters 0.98 0.93 0.02 0.95 0.66 65 Paper and p l a s t i c bag 0.88 0.87 o.oo 0.88 0.61 66 Corrugated boxes 1.05 1.70 0.00 1.37 0.95 67 Folding cartons, etc. 0.93 0.57 0.00 0.75 0.52 68 Iron and s t e e l m i l l s . 1.31 1.56 1.14 1.43 1.34 69 Aluminum r o l l i n g , casting extruding 1.07 0.27 0.00 0.67 0.46 70 Fabricated s t r u c t u r a l metal 1.20 0.80 0.00 1.00 0.69 U l TABLE 2 (Continued) HUMAN PHYSICAL TOTAL . TOTAL CAPITAL & NO. INDUSTRY CAPITAL-LABOUR CAPITAL-LABOUR RESOURCE-LABOUR CAPITAL-LABOUR RESOURCE-LABOUR 71 Hardware, t o o l , c u t l e r y 1.01 0.93 0.00 0.97 0.67 72 Metal r o l l i n g , casting, etc. 1.01 1.09 0.03 1.05 0.74 73 Wire and wire products 1.09 0.82 0.01 0.95 0.66 74 Ste e l tubes and pipes 1.27 1.27 0.01 1.27 0.88 75 Ornamental arch, metal 0.95 0.63 0.00 0.79 0.55 76 B o i l e r and pl a t e works 1.07 0.51 0.01 0.78 0.54 77 Copper and a l l o y r o l l i n g 1.16 0.75 0.01 0.95 0.66 78 Heating equipment 0.99 0.85 0.01 0.92 0.64 79 Iron foundries 0.98 0.58 0.04 0.78 0.55 80 Metal stamping, etc. 1.06 0.94 0.01 1.00 0.69 81 Misc. metal f a b r i c 1.02 0.90 0.01 0.96 0.67 82 A g r i c u l t u r a l implements 1.15 0.80 0.02 0.97 0.68 83 Boat b u i l d i n g , r e p a i r 0.79 0.64 0.00 0.72 0.50 84 Shipbuilding, r e p a i r 1.06 0.44 0.00 0.75 0.52 85 Motor v e h i c l e parts and accessories 1.19 0.98 0.02 1.08 0.76 86 Railroad r o l l i n g stock 1.17 0.83 0.01 1.00 0.69 87 Misc. v e h i c l e mfg. 0.84 1.28 0.01 1.06 0.74 88 Misc. machinery equipment 1.10 0.84 0.02 0.97 0.68 89 Commercial r e f r i g e r a t i o n 0.99 1.08 0.00 1.03 0.71 90 O f f i c e and store machinery 1.28 1.87 0.00 1.57 1.09 91 T r a i l e r s 0.95 0.42- 0.01 0.68 0.47 92 Small e l e c t r i c a l appliances 0.92 1.27 0.01 1.09 0.76 93 Major appliances 1.00 1.00 0.01 . 1.00 0.70 94 Household radio and TV 0.99 0.96 0.00 0.98 0.68 95 Communication equipment 1.02 0.67 0.00 0.84 0.59 to TABLE 2 (Continued) HUMAN PHYSICAL TOTAL TOTAL CAPITAL & NO. INDUSTRY CAPITAL-LABOUR CAPITAL-LABOUR RESOURCE-LABOUR CAPITAL-LABOUR RESOURCE-LABOUR 96 E l e c t r i c a l i n d u s t r i a l equipment 1.15 0.94 0.01 1.04 0.72 97 Battery mfg. 1.01 1.20 0.00 1.11 0.77 98 E l e c t r i c a l wire and cable 1.16 1.01 0.01 1.08 0.75 99 Misc. e l e c t r i c a l products 0.91 0.97 0.00 0.94 0.65 100 Abrasives 1.21 0.88 0.67 1.04 0.93 101 Asbestos products 1.14 0.86 0.56 1.00 0.86 102 Cement 1.26 4.04 0.54 2.67 2.01 103 Concrete products 0.91 0.85 . 0.33 _ 0.88 0.71 104 Glass and glass products 1.00 . 0.71 0.96 0.69 105 Other nonmetal mineral prodcts. 1.03 1.36 0.75 1.20 1.06 106 Mineral wool 1.11 2.11 0.82 1.62 1.37 107 Stone products 0.84 0.62 0.25 0.72 0.58 108 Refractories mfg. 1.07 2.11 0.71 1.60 1.33 109 Clay products 0.93 0.87 0.28 0.90 0.71 110 Gypsum products 0.99 2.33 0.66 1.66 1.33 111 Petroleum r e f i n e r i e s 1.39 4.55 19.92 2.99 8.20 112 Lu b r i c a t i n g o i l s , greases 1.15 4.85 9.46 3.02 5.00 113 Other petroleum and coal prodcts. 1.13 x 2.58 5.05 1.87 2.85 114 Pharmaceuticals, etc. 1.11 1.90 0.01 1.51 1.05 115 Paints and varnishes 1.07 - 1.46 0.04 1.27 0.89 116 P l a s t i c s and synthetics 1.27 2.77 0.04 2.03 1.42 117 Soap and cleaning compounds 1.25 2.35 0.04 1.81 1.26 118 T o i l e t preparations 0.95 2.37 0.02 1.67 1.16 119 Other chemical i n d u s t r i e s 1.11 1.72 0.34 1.42 1.08 120 I n d u s t r i a l chemicals 1.28 2.51 0.38 1.90 1.44 121 Mixed f e r t i l i z e r 1.06 1.66 0.70 1.36 1.16 TABLE 2 (Continued) e. Source: Manufacturing industries of Canada, Summary 1963 (DBS #31 - 203), Section 4, Table 4. Input-Output Tables for the Canadian Economy, - (DISS #15 - 502) , Table 13 (1961). , _ Tot a l S a l a r i e s and Wages Tota l Number Employees b PK/L - V a3- u e Added To t a l A c t i v i t y - T o t a l S a l a r i e s and Wages Tota l Number Employees * , _ Value of Resource Product Input T o t a l Number Employees d TK/L = V a l u e Added To t a l A c t i v i t y T o t a l Number Employees TK & R/L - V a-*- u e Added Total A c t i v i t y + Value of Resource Product Input Total Number Employees adjusted; see footnote 32. oo CHAPTER I I I PROTECTION OF CANADIAN MANUFACTURING INDUSTRIES Attempts to determine l e v e l s of p r o t e c t i o n f o r various manufac-tu r i n g i n d u s t r i e s are exceedingly d i f f i c u l t . The conclusions which can be drawn from t h i s study w i l l , i n part, be determined by the d e f i n i t i o n of protection used. Hence, care should be taken i n s e l e c t i n g an appropri-ate method. L Nominal T a r i f f s and E f f e c t i v e Rates of ^Protection Two notions of t a r i f f p r o t e c t i o n are popular i n the l i t e r a t u r e . F i r s t l y , there i s the "nominal t a r i f f " which applies to the imported counterparts of domestic production. This concept indicates the degree by which the cost of a good produced domestically can exceed i t s i n t e r -n a t i o n a l market price.''" I t i s measured as the ad valorem percentage by which the domestic p r i c e can exceed the i n t e r n a t i o n a l p r i c e or free trade value. A second measure, the " e f f e c t i v e rate of p r o t e c t i o n " concept, con-centrates on i n d u s t r i e s , rather than on products. I t measures the extent to which the costs added at any stage of production can be r a i s e d as a r e -s u l t of the t a r i f f . I t w i l l be measured as the percentage increase over free trade value added permitted by the t a r i f f . Thus, the e f f e c t i v e rate It should be noted here that there i s an assumption that we are dealing with a small country i n a large world, such that the country faces an i n t e r n a t i o n a l p r i c e for traded commodities over which i t has no i n f l u e n c e . 29 30 i s r e l a t e d to value added i n the same way that the nominal t a r i f f i s r e -la t e d to t o t a l value. Arguments which favour use of the e f f e c t i v e rate point out that nominal rates give an inaccurate i n d i c a t i o n of the pro t e c t i o n received by 2 any producer at a given stage of f a b r i c a t i o n . T a r i f f s , i t i s argued, r a i s e the maximum cost at which domestic producers w i l l be able to oper-ate. Since the returns to i n t e r n a t i o n a l l y traded inputs are f i x e d , i t i s only that portion of costs which are associated with non-traded p r i -mary domestic inputs which are affected by the t a r i f f s tructure. Thus i t i s t h i s r e l a t i v e increase which i s the important measure of protec t i o n . The f a c t o r a l l o c a t i o n e f f e c t s of the t a r i f f , i . e . , the s h i f t i n g of pro-duction f a c t o r s between i n d u s t r i e s , w i l l be greatest where the increases 3 i n value added permitted by the t a r i f f are l a r g e s t . The e f f e c t i v e p r o t e c t i o n approach has faced serious c r i t i c i s m r e c e ntly from W. P. T r a v i s , who charges that i t i s both an ambiguous and 4 meaningless concept. His c r i t i c i s m centres around the d i f f i c u l t y of i s o -See: W. M. Corden, "The Structure of a T a r i f f System and the E f f e c t i v e P r o t e c t i v e Rate," Journal of Political Economy, LXXIV (June, 1966), pp. 221-237; Bela Balassa, " T a r i f f P rotection i n I n d u s t r i a l Countries: An Evaluation," Journal of Political Economy, LXXIII (December, 1965), pp. 573-594; Giorgio Basevi, "The United States T a r i f f Structure," Review of Econo-mics and S t a t i s t i c s , XLVIII (May, 1966), pp. 147-160. 3 S t r i c t l y , "value added" represents that portion of the value of shipments i n an industry which r e f l e c t returns to the services of the p r i -mary factors labour and c a p i t a l . I t includes here the value of other non-traded inputs which also share i n the e f f e c t s of protec t i o n . William P. T r a v i s , "The E f f e c t i v e Rate of Pr o t e c t i o n , " op. cit. 31 l a t i n g i n d u s t r i e s from a commodity base, and the ambiguity of p r i c e i n -creases i n value added. Both the p r a c t i c a l and conceptual problems i n -volved i n e f f e c t i v e rates of p r o t e c t i o n , he says, suggest that nominal t a r i f f s are a more appropriate t o o l . The objections r a i s e d by Travis do not seem to be as serious as he would suggest, however. The assumption that i n d u s t r i e s can be i d e n t i f i e d and separated i n stages i n a meaningful way i s conceptually more r e a l i s t i c than T r a v i s ' assumption that "each product, whatever i t s 'stage of f a b r i c a t i o n ' , ( i s ) produced i n a s i n g l e enterprise from the ground up." Conceivably the existence of c e r t a i n labour i n t e n s i v e mat-e r i a l inputs i n t o the f i n a l production stage of a commodity could make an otherwise c a p i t a l - l a b o u r i n t e n s i v e industry l a b o u r - c a p i t a l i n t e n s i v e . His procedure assumes that a l l material inputs i n a productive process are domestically produced and ignores the opportunity f o r trade between d i f f e r e n t l e v e l s of f a b r i c a t i o n . The present study w i l l use both concepts i n r e l a t i n g p r o t e c t i o n and f a c t o r i n t e n s i t i e s i n manufacturing i n d u s t r i e s The Samuelson-Stolper Another d e f i n i t i o n of p r o t e c t i o n was chosen i n the Vaccara study. The average nominal t a r i f f approach was abandoned, and p r o t e c t i o n was meas-ured i n terms of the proportion of an industry's output which consisted of "protected products." (Protected products were goods of which exports did not exceed 15 per cent of domestic production and for which a t a r i f f of at l e a s t 10 per cent ad valorem equivalent was provided). While t h i s measure gives some i n d i c a t i o n of the scope of p r o t e c t i o n i n any given industry, i t does not r e f l e c t the height of protection provided. Vaccara has assumed that there i s some c o r r e l a t i o n between the height of duties i n an industry and the proportion of i t s products protected. Op. oit., pp. 16-18. Basevi, Op. cit., p. 151, i n carrying the Vaccara study further to r e l a t e to e f f e c -t i v e p r o t e c t i o n , concludes that "Vaccara's measure of protection.. , . i s even more u n s a t i s f a c t o r y than average t a r i f f r a t e s . " In a r r i v i n g at h i s 32 theorem asserts that t a r i f f p r o t e c t i o n w i l l be biased i n favour of the scarce f a c t o r among primary inputs. The r e l a t i o n s h i p which should therefore e x i s t w i l l be between that form of p r o t e c t i o n which protects the scarce primary f a c t o r and the r e l a t i v e use of that primary input. Where d i r e c t inputs only are being considered, the expected r e l a t i o n s h i p should e x i s t with e f f e c t i v e rates, since e f f e c t i v e rates represent protec-t i o n of the value added by primary inputs at a given stage of f a b r i c a t i o n . Nominal ra t e s , which represent p r o t e c t i o n of t o t a l value, should r e l a t e more c l o s e l y with " d i r e c t - p l u s - i n d i r e c t " f a c t o r inputs, since the t o t a l value of these inputs from a l l preceeding stages w i l l equal the t o t a l value of production.^ The r e l a t i o n s h i p of nominal rates to d i r e c t f a c t o r inputs w i l l have l i t t l e meaning, therefore. I t w i l l give no support to arguments which assume a labour bias i n the Canadian t a r i f f nor w i l l i t give any i n d i c a t i o n of the r e a l f a c t o r a l l o c a t i o n e f f e c t s . However, the concept of e f f e c t i v e rates i s a r e a l t i v e l y new one, and since the present t a r i f f s t r u c t u r e has not undergone any s i g n i -f i c a n t changes i n recent times, nominal rates may have been applied with measures of nominal t a r i f f r a t e s , he goes on to use average t a r i f f r ates, c a l c u l a t e d as has been outlined i n the present study. Certain of these rates he adjusts i n an attempt to c a l c u l a t e rates " i n which the weights are closer to the values of domestic shipments," but succeeds only i n introducing f u r t h e r a r b i t r a r y elements which are not n e c e s s a r i l y more s a t i s f a c t o r y . ^The two measures are thus analagous, i n that they both r e l a t e p r o t e c t i o n to primary f a c t o r use alone. The d i f f e r e n c e i s i n which primary f a c t o r s are relevant. As the point was made i n the previous chapter, the use of " d i r e c t - p l u s - i n d i r e c t " primary f a c t o r s excludes the p o s s i b i l i t y of i n t e r n a t i o n a l trade i n intermediate inputs, and ignores the probable d i f -ferences i n f a c t o r I ntensity of production processes at the d i f f e r e n t stages of f a b r i c a t i o n of a f i n a l product. 33 l i t t l e awareness of the r e a l e f f e c t s i n the b e l i e f that nominal rates r e -present the true p r o t e c t i o n afforded a given industry.^ At any rate pre-vious studies have pointed to a high rank c o r r e l a t i o n between the two meas-8 ures of p r o t e c t i o n . Hence, l i t t l e d i f f e r e n c e can be expected i n r e s u l t s using e i t h e r approach. A f i n a l point which should be included here i s that while i t may seem that p r o t e c t i o n and t a r i f f s have become synonymous terms i n this study, t h i s has been determined by p r a c t i c a l , rather than t h e o r e t i c c a l , considerations. To be sure, t a r i f f s are only one of several factors which can provide p r o t e c t i o n to domestic producers. Quantitative r e s t r i c -tions are another t o o l of commercial p o l i c y which can be more e f f e c t i v e i n l i m i t i n g imports, but there i s some d i f f i c u l t y i n r e l a t i n g t h i s form 9 of p r o t e c t i o n to that afforded by t a r i f f s . Even more d i f f i c u l t are the subtle hinderances provided by domestic subsidies, administrative red tape, and p r i v a t e producers-distributor c o l l u s i o n . Transportation costs as a complement to t a r i f f s i s another form of p r o t e c t i o n which has r e -I t might be argued, however, that while the concept of e f f e c t i v e rates i s new to economists, i n d u s t r i a l i s t s have long been aware of the r e a l e f f e c t s of t a r i f f s on t h e i r costs. Hence, they may have lobbied f o r high nominal t a r i f f s and the appropriate r e a l p r o t e c t i o n without i t being c l e a r that they were following a r a t i o n a l p o l i c y . 8 Melvin and Wilkinson, op. oit., p. 29, observed a Spearman rank c o r r e l a t i o n of 0.86 between the two sets of rates for Canada. This i s the data used i n the present study. The c o e f f i c i e n t c a l c u l a t e d by W. G. Waters II f o r the U.S. t a r i f f i s 0.9575. "Transport Costs, T a r i f f s , and the Pattern of I n d u s t r i a l P r o t e c t i o n , " American Economic Review (forthcoming). 9 Jagdisk Bhagwati, "More on the Equivalence of T a r i f f s and Quotas," American Economic Review, LVIII (March, 1968), pp. 142-146; G. P. Yadav, "A Note on the Equivalence of T a r i f f s and Quotas," Canadian Journal of Economics, I (February, 1968), pp. 105-110. Quantitative r e s t r i c t i o n s should not a f f e c t the a n a l y s i s , however. E x i s t i n g Canadian quotas are not s u b s t a n t i a l and are associated with already higher than average t a r i f f r ates. See: G. P. Yadav, "Discriminatory Aspects of Canada's Imports of Manufactured Goods from the Developed and the Less Developed Countries," Discussion Paper No. 32 (University of B r i t i s h Columbia: Department of Economics, 1969), pp. 24-32, 34 ceived some recent considerations."^ Inclusion of these types of protec-t i o n i n our measure would require complete information about fo r e i g n and domestic p r i c e s and costs, and t h i s information i s not r e a d i l y a v a i l a b l e . I t i s beyond the scope of the present study to pursue these other measures of p r o t e c t i o n , and i t w i l l be assumed that t a r i f f p o l i c i e s w i l l p a r a l l e l other types of import r e s t r i c t i o n . " ^ The task of c a l c u l a t i n g nominal and e f f e c t i v e p r o t e c t i o n rates f o r Canadian manufacturing i n d u s t r i e s has been s i m p l i f i e d by the recent study of e f f e c t i v e p r o t e c t i o n prepared,for the economic Council of Canada 12 by Melvin and Wilkinson. Their study presents the two measures of pro-t e c t i o n which have been selected f o r use i n t e s t i n g the hypothesis of this paper. They appear i n Table 3. Before proceeding to t h i s t e s t , however, i t w i l l be u s e f u l to review some of the problems involved i n c a l c u l a t i n g the measures they present, and some of the assumptions which influence the conclusions that can be drawn from the present study. Commodity-Industry C l a s s i f i c a t i o n T a r i f f rates apply to p a r t i c u l a r commodities, while our study involves p r o t e c t i o n of d i f f e r e n t manufacturing i n d u s t r i e s . This d i f f e r e n c e ^Waters, op. ait. " ^ I t i s l i k e l y though that d i f f e r e n t p r o t e c t i o n measures are com-plementary. Hence, where other forms of pro t e c t i o n are high the pro t e c t i o n provided by the t a r i f f need not be. 12 • Melvin and Wilkinson, op. o%t. 3 pp. 21-28. 35 poses some p r a c t i c a l d i f f i c u l t i e s . In the f i r s t place, commodities must be placed i n an industry c l a s s i f i c a t i o n . D i f f i c u l t i e s may a r i s e because c e r t a i n products might be outputs from more than one industry, or because the industry i n which im-ported products would o r i g i n a t e i s not c l e a r . The problem i s to a l l o c a t e products to those i n d u s t r i e s where they are, or would be, a primary product The major problem i s f i n d i n g the average of commodity t a r i f f s which can be used as a measure of p r o t e c t i o n f o r the industry. Normally no s i n g l e t a r i f f applies to a l l production of a given industry. The var-ious products w i l l u s ually have d i f f e r e n t t a r i f f s , and an industry t a r i f f must be some weighted average of these. An industry t a r i f f i s the average of rates which would apply to the imported counterparts of a l l of an industry's production. I n d i v i d u a l t a r i f f s should be weighted by the free trade value of corresponding domes-t i c production. Such a measure would r e f l e c t both the scope and magnitude of i n d i v i d u a l duties provided f o r the products of an industry. But a weigh ing system of t h i s type faces a serious p r a c t i c a l obstacle. D e t a i l e d commo d i t y production figures are not r e a d i l y a v a i l a b l e . Similar problems are i n volved i n proxy v a r i a b l e s such as domestic consumption or world trade. The commonly used approach, and that taken i n the Melvin-Wilkinson study, i s to 13 weight by the volume of imported commodities. •"Their approach i s to take Duty Paid as a percentage of To.tal Im-ports value i n any industry c l a s s i f i c a t i o n . Thus they weight i n d i v i d u a l commodity t a r i f f s by the volume of those commodities i n imports. Melvin and Wilkinson, op. oit., p. 14. 36 Despite the disadvantages of this approach, the data is avail-able. Imported commodities can be considered at best a very rough approxi-mation of domestic production. One can see that an average tariff will easily be distorted, since certain products will tend to be far more domi-nant in imports relative to domestic output than others. The assumption is that while this may be true between industries i t tends not to be with-in an industry, or at least that the number of commodities within an in-dustry is sufficiently great that any bias so developed will be cancelled out. For some industries, however, the situation is likely to occur that certain duty free or low tariff commodities will account for a large part of imports, although similar commodities are a small part of domestic pro-duction. Such cases will tend to distort the nominal tariff measure of protection for any industry. A second distortion arising from this method is that tariffs themselves introduce a bias into the results. To the extent that tariffs are protective they tend to reduce trade flows, and hence commodities with higher nominal protection will receive lower weights than they would were free trade flows being used. Again, the more desirable approach is limited by practical data problems. Pricing to the Tariff The Melvin-Wilkinson calculations are based on an assumption that in a l l industries Canadian producers price up to the world price (generally the U,S. price) plus the Canadian tariff. To the extent that this situation 37 does not p r e v a i l the authors recognize that c e r t a i n estimates w i l l be 14 overstated. Several i n d u s t r i e s are mentioned i n the Wonnacott and Wonnacott study, f o r example, where Canadian producers have p r i c e d be-low the "world p r i c e plus t a r i f f O n the other hand, various sources have suggested that i n general such a p r i c e s i t u a t i o n p r e v a i l s i n Canada."^ E f f i c i e n c y and the T a r i f f 'Any measure of the degree of pro t e c t i o n f o r an industry r e l a t e s to the extent to which costs i n that industry can exceed those of the same industry i n a s i t u a t i o n of free trade. As such, i t measures the increase i n returns p o t e n t i a l l y a v a i l a b l e to primary production factors and any non-traded inputs at that stage or production. One important assumption i s that the imposition of the t a r i f f as a means of pr o t e c t i o n does not change e i t h e r the r a t i o of inputs to one another or the r a t i o of inputs to output w i t h i n the industry. To the 14 I f producers do not p r i c e up to the i n t e r n a t i o n a l p r i c e plus t a r i f f t h i s would i n d i c a t e that the t a r i f f provided i s too high. To the extent that producers do not use the whole of the nominal t a r i f f , the de-gree to which value added i s affe c t e d i s reduced. Thus e f f e c t i v e rates estimated on the basis that the whole of the t a r i f f i s used w i l l be higher than i n ac t u a l f a c t . "^Wonnacott and Wonnacott, op. cit.3 pp. 248-69. 16 H. C. Eastman, "The Canadian T a r i f f and the E f f i c i e n c y of the Canadian Economy," American Economic Review Papers and Proceedings, LIV (May, 1964), p. 448; H. Edward E n g l i s h , Industrial Structure in Canada's International Competitive Position (Private Planning A s s o c i a t i o n of Canada, 1964), p. 36. 38 extent that the f i r s t of these, f a c t o r s u b s t i t u t i o n , does occur, there w i l l be a tendency to overestimate e f f e c t i v e p r o t e c t i o n ; to the extent that the l a t t e r , scale e f f e c t s , do occur, e f f e c t i v e p r o t e c t i o n w i l l be somewhat underestimated."^ I f e i t h e r e f f e c t occurs d i f f e r e n t l y between i n d u s t r i e s our ranking of protection l e v e l s w i l l be d i s t o r t e d . The evidence suggests that both f a c t o r s u b s t i t u t i o n and scale 18 e f f e c t s do occur i n the Canadian economy. Where the r e l a t i v e returns to various factors of production are d i f f e r e n t , economic theory t e l l s us to expect differences i n factor input r a t i o s . On the other hand, the l i k e l i h o o d i s that these e f f e c t s do not occur very d i f f e r e n t l y be-tween i n d u s t r i e s , and hence i n d u s t r i e s w i l l tend to adjust to differences 19 i n r e l a t i v e f a c t o r p r i c e s i n the same way. The ranking of i n d u s t r i e s by f a c t o r i n t e n s i t i e s may not be a l t e r e d even i f some s u b s t i t u t i o n takes place between f a c t o r s . For a discussion on how estimates might be i n error as a r e s u l t of these e f f e c t s , see; Melvin and Wilkinson, op. cit., pp. 45-47; Corden, op. cit., pp. 233-235, 18 Eastman points out that while the b a s i c c a p i t a l equipment used i n manufacturing i n d u s t r i e s i s the same i n a l l i n d u s t r i a l i z e d countries, "a s u b s t i t u t i o n of factors i n response to d i f f e r e n t r e l a t i v e p r i c e s occurs i n the proportion of output produced i n new plants and equipment and i n the degree of mechanization of p e r i p h e r a l processes." (Op. cit., p. 441), Much has been written on the scale e f f e c t s brought about by the s i z e of the Canadian market and the Canadian t a r i f f . I t i s generally agreed that the r e s u l t has been an i n d u s t r i a l base i n t h i s country which i s less e f f i c i e n t than that of i t s neighbour. More of a l l primary factor per u n i t of output are used i n Canada than would be the case i n a free trade s i t u a t i o n . (Wonna-cott and Wonnacott, op. cit., p. 184). 19 Hal Lary undertook extensive study of the phenomenon of " f a c t o r r e v e r s a l s , " i n c l u d i n g i n h i s analysis countries between which considerable differences i n r e l a t i v e factor prices existed. His evidence suggests that even large differences i n f a c t o r p r i c e r a t i o s do not a l t e r the pattern of 39 Factor A l l o c a t i o n and the T a r i f f There are c e r t a i n q u a l i f i c a t i o n s about the s h i f t i n g of input factors that w i l l r e s u l t from prote c t i o n . When t a r i f f s are imposed and domestic prices r i s e , i t implies a reduction i n t o t a l demand. For the absolute output of the protected domestic industry to expand, producers must obtain a s i g n i f i c a n t l y l a r g e r r e l a t i v e share of a smaller market. Thus the extent to which the output of any industry responds to protect t i o n w i l l d i f f e r . Outputs may not s h i f t i n accord with any ranking by " r e a l " p r o t e c t i o n l e v e l s . Furthermore, the e f f e c t s on f i n a l output w i l l be indeterminant because of the m u l t i p l i c i t y of pressures on any s i n g l e industry. In general, the highly protected i n d u s t r i e s w i l l draw input factors from the r e l a t i v e l y unprotected i n d u s t r i e s , but the degree of adjustment i s ' ' . 20 not c e r t a i n . Traded and Non-Traded Inputs Melvin and Wilkinson c a l c u l a t e t h e i r e f f e c t i v e rates of pro-t e c t i o n on the assumption that "value added" represents the returns to f a c t o r i n t e n s i t i e s among i n d u s t r i e s (op. cit.} p. 80). The Melvin-Wilkinson study also concludes that s u b s t i t u t i o n of factors w i l l have l i t t l e e f f e c t on industry rankings. (Op. cit. t p. 47). 20 In-between i n d u s t r i e s w i l l a t t r a c t primary factors from those i n -dustries below them, and lose factors to i n d u s t r i e s above them on the pro-t e c t i o n ranking s c a l e . See a f u l l e r d iscussion of t h i s problem i n Corden, pp. cit. t p, 224, 40 a l l primary inputs. I t i s possible to f i n d f a u l t i n th i s measure on two grounds: f i r s t l y , that the authors have excluded c e r t a i n non-traded i n -puts which properly ought to be included as primary f a c t o r s ; and secondly, that the degree to which p h y s i c a l c a p i t a l can be considered a primary f a c -tor i s somewhat i n d o u b t . ^ Melvin and Wilkinson noted with p a r t i c u l a r reference to e l e c t r i c i t y and f u e l that the domestic supply of non-traded inputs was assumed p e r f e c t -l y e l a s t i c . They suggest that while t h e i r rates may be a l i t t l e high, J. C. L e i t h has shown there to be l i t t l e change i n the ranking of indus-t r i e s by e f f e c t i v e p r otection when these inputs are included as primary 22 fa c t o r s . The i n c l u s i o n of non-traded "resource products" may have a d i f f e r e n t e f f e c t , however, since i t i s l i k e l y to influence only some i n -dustries and not others. For those i n d u s t r i e s i n which non-traded resource products are a s i g n i f i c a n t input, the e f f e c t i v e rates of pro t e c t i o n presen-23 ted w i l l be s u b s t a n t i a l l y overestimated. 21 In t h i s study the "primary f a c t o r " i s used to denote any pro-duction input which i s not i n t e r n a t i o n a l l y mobile. At any given time the domestic stock of such inputs i s f i x e d , and the returns to these inputs are domestically determined. In an i n t e r n a t i o n a l sense, primary factors would include c a p i t a l , but i t may have considerable i n t e r n a t i o n a l mobility. 22 J. C. L e i t h , " E f f e c t i v e Rates of Protection: Analysis and an Empirical Test," (unpublished Ph.D. d i s s e r t a t i o n , Department of Economics, U n i v e r s i t y of Wisconsin, 1967), c i t e d by Melvin and Wilkinson, op. oit,, p, 48, 23 Non^traded inputs should be included with the components of "value added" to form the base f o r the c a l c u l a t i o n of e f f e c t i v e p r otection rates. I f the value of resource products i s s i g n i f i c a n t r e l a t i v e to value added then there w i l l be a s u b s t a n t i a l reduction i n an e f f e c t i v e rate when t h i s factor i s included. 41 Arguing that i t i s often more reasonable to assume that c a p i t a l , l i k e other m a t e r i a l inputs, i s i n t e r n a t i o n a l l y mobile, and that labour i s the only immobile f a c t o r , Basevi chose to c a l c u l a t e e f f e c t i v e l e v e l s 24 of labour p r o t e c t i o n , using labour as h i s only primary f a c t o r . His 25 argument was that i n the long-run c a p i t a l i s free to move i n t e r n a t i o n -a l l y and thus t a r i f f s should be considered as pro t e c t i n g only domestic labour and that part of value added which consists of labour costs. This argument has some relevance i n the Canadian case, where c a p i t a l i s par-t i c u l a r l y mobile w i t h i n the North American continent, and to the extent that i t i s v a l i d , the e f f e c t i v e p r o t e c t i o n rates c a l c u l a t e d by Melvin 26 and Wilkinson w i l l be underestimated. However, p h y s i c a l c a p i t a l has been considered i n the present study, and the Melvin-Wilkinson estimates are u t i l i z e d , bearing i n mind the pos s i b l e bias that may occur. Baseyi, op. cit. 25 In the short-run p h y s i c a l c a p i t a l i s r e l a t i v e l y immobile, exis-t i n g i n the form of tangible assets. I t i s only i n the rer-investment sense that c a p i t a l can be considered mobile. 26 The base of the c a l c u l a t i o n of e f f e c t i v e rates included the re-turns to both p h y s i c a l c a p i t a l and to labour ( i . e . , human c a p i t a l ) . I f the former i s not included then the base i s reduced and estimates would be l a r g e r than those calculated by Melvin and Wilkinson. TABLE 3 NOMINAL TARIFFS AND EFFECTIVE TARIFFS FOR 121 INDUSTRIES IN THE CANADIAN CENSUS OF MANUFACTURES, 1963 NOMINAL EFFECTIVE TARIFFS TARIFFS NO. INDUSTRY RATES RATES3 1 B i s c u i t manufacturing 8.0 5.1 2 Bakeries 8.0 7.3 3 Breakfast cereals 13.5 17.5 4 Soft drinks 4.9 1.4 5 Dairy factories 7.1 -15.6 6 Process cheese 6.6 0.8 7 Confectionery 17.3 26.8 8 Feed manufacturing 7.2 8.9 9 Flour m i l l s 8.8 31.9 10 Fish products 8.8 22.8 11 F r u i t , vegetable canners and preserves 9.0 6.2 12 Macaroni 14.6 25.8 13 Animal o i l s and fats 4.7 1.9 14 Sausage and sausage casings 2.1 - 6.2 15 Slaughtering, meat packing 5.2 5.7 16 Sugar r e f i n e r i e s 24.2 - 7.6 17, Vegetable o i l m i l l s 4.7 34.5 18 Miscellaneous food 5.1 1.2 19 Poultry processors 12.7 21.9 20 Leather tanneries 8.6 16.7 21 Shoe factories 21.7 28.3 22 Boot and shoe findings 21.3 33.2 23 Leather gloves 23.1 34.6 24 Miscellaneous leather products 23.1 36.2 25 Rubber industries 20.1 36.7 26 Canvas products 18.5 18.4 27 Cordage and twine 1.8 - 1.4 28 Cotton and jute bag 14.7 48.5 29 Cotton yarn and cloth 20.0 38.0 30 Narrow fa b r i c m i l l s 19.4 24.4 31 Synthetic t e x t i l e s 30.3 58.2 32 Wool yarns 10.8 27.3 33 Wool cloth 19.3 40.4 34 Pressed and punched f e l t 24.2 70.8 35 Linoleum and coated f a b r i c 24.9 43.2 TABLE 3 (Continued) NOMINAL EFFECTIVE TARIFFS TARIFFS NO. INDUSTRY RATES RATES 36 Embroidery, p l e a t i n g , etc. 20.2 23.1 37 Auto f a b r i c s 30.3 82.8 38 Miscellaneous t e x t i l e s 15.4 15.9 39 Foundation garments 28.4 34.8 40 Fur goods 25.0 98.9 41 K n i t t i n g m i l l s 31.1 64.9 42 Hosiery m i l l s 25.2 37.0 43 Fabric gloves 26.5 36.0 44 Fibre preparing m i l l s 20.0 61.1 45 Thread m i l l s 0.4 -10.1 46 Carpet, mat and rug 28.2 59.7 47 Hardwood f l o o r i n g 12.5 25.4 48 Sawmills 2.2 2.2 49 Shingle m i l l s 2.2 2.1 50 Sash, door and millwork 22.5 45.1 51 Veneer and plywood 14.4 24.9 52 Miscellaneous wood industry 10.6 17.6 53 Wooden box 22.5 38.4 54 C o f f i n and casket 22.5 32.4 55 Household f u r n i t u r e 25.8 41.2 56 O f f i c e f u r n i t u r e 26.8 39.1 57 Miscellaneous f u r n i t u r e 25.8 40.1 58 Commercial p r i n t i n g 19.3 24.9 59 Platemaking, typesetting, etc. 19.3 22.0 60 Publishing 1.3 1.5 61 Publishing and p r i n t i n g 1.3 0.4 62 Pulp and paper 13.0 24.9 63 Asphalt roofing 25.0 49.1 64 Miscellaneous paper converters 22.2 32.8 65 Paper and p l a s t i c bag 20.7 32.4 66 Corrugated boxes 20.8 56.7 67 Folding cartons, etc. 20.8 27.9 68 Iron and s t e e l m i l l s 6.7 8.6 69 Aluminum r o l l i n g , casting extruding 4.2 2.2 70 Fabricated s t r u c t u r a l metal 8.0 5.7 71 Hardware, t o o l , c u t l e r y 15.5 19.3 72 Metal r o l l i n g , c a s t i n g , etc. 1.1 - 6.3 73 Wire and wire products 16.2 23.8 74 Steel tubes and pipes 10.0 14.6 75 Ornamental arch, metal 18.0 29.0 TABLE 3 (Continued) NOMINAL EFFECTIVE NO INDUSTRY TARIFFS TARIFFS NO. INDUSTRY 76 B o i l e r and plate works 9.7 6.2 77 Copper and a l l o y r o l l i n g , etc. 1.3 - 3.3 78 Heating equipment 15.6 20.7 79 Iron foundries 15.4 24.6 80 Metal stamping, etc. 21.6 35.3 81 Miscellaneous metal f a b r i c 18.0 24.8 82 A g r i c u l t u r a l implements 0.0 0.0 83 Boat b u i l d i n g , r e p a i r 17.5 24.4 84 Shipbuilding, r e p a i r 17.5 24.9 85 Motor v e h i c l e parts, accessories 10.2 8.3 86 R a i l r o a d r o l l i n g stock 16.6 24.3 87 Miscellaneous v e h i c l e manufacturing 15.0 20.0 88 Miscellaneous machinery equipment 9.5 7.9 89 Commercial r e f r i g e r a t i o n , etc. 15.4 20.0 90 O f f i c e and store machinery 11.0 11.0 91 T r a i l e r s 20.7 41.5 92 Small e l e c t r i c a l appliance j. 19.7 27.9 93 Major appliances 19.7 31.4 94 Household radio and TV 20.7 36.0 95 Communication equipment 14.8 17.4 96 E l e c t r i c a l i n d u s t r i a l equipment 17.7 21.4 97 Battery manufacturing 17.4 25.4 98 E l e c t r i c a l wire and cable 20.3 41.3 99 Miscellaneous e l e c t r i c products 14.1 17.4 100 Abrasives 20.5 44.1 101 Asbestos products 12.2 16.3 102 Cement 3.4 3.1 103 Concrete products 18.3 31.1 104 Glass and glass products 10.1 11.5 105 Other nonmetal mineral products 19.9 31.6 106 Mineral wool 24.1 34.5 107 Stone products 15.7 17.5 108 Refractories manufacturing 4.3 1.3 109 Clay products 11.5 13.6 110 Gypsum products 25.0 37.0 TABLE 3 (Continued) NOMINAL EFFECTIVE NO. INDUSTRY TARIFFS TARIFFS RATES RATES 111 Petroleum r e f i n e r i e s 5.3 27.8 112 Lu b r i c a t i n g o i l s and greases 14.0 17.3 113 Other petroleum and coal products 5.0 1.6 114 Pharmaceuticals, etc. 22.5 28.8 115 Paints and varnishes 16.7 23.1 116 P l a s t i c s and synthetics 8.2 7.1 117 Soap and cleaning compound 19.5 31.4 118 T o i l e t preparations 15.6 18.3 119 Other chemical i n d u s t r i e s 7.8 4.8 120 I n d u s t r i a l chemicals 6.8 5.3 121 Mixed f e r t i l i z e r 7.5 20.3 Source: Melvin and Wilkinson, op. cit.3 pp. 21-28. C a l c u l a t i o n using 11.3% for unspecified inputs. CHAPTER IV INDUSTRY PROTECTION AND FACTOR BIAS The f a c t o r proportions theorem pr e d i c t s that the r e l a t i v e l y scarce f a c t o r i n an economy w i l l have an incentive to seek pro t e c t i o n against i n -te r n a t i o n a l competition for those i n d u s t r i e s i n which that f a c t o r i s i n -tensive among primary inputs. A number of studies concerning the Cana-dian t a r i f f have made the i m p l i c i t assumption that labour i s the scarce fa c t o r i n t h i s country and has had success i n introducing a labour bias i n t o the pattern of pro t e c t i o n among manufacturing i n d u s t r i e s . With the tools that have been developed i n the previous two chapters, there i s now an opportunity to in v e s t i g a t e the empirical accuracy of t h i s assumption. This chapter presents the r e s u l t s of a rank correlation''" analysis between the two'measures of protection and the labour i n t e n s i t y r e l a t i o n -ships. In the f i r s t s e c t i o n , the nominal t a r i f f -measure of pro t e c t i o n i s considered against labour i n t e n s i t y r e l a t i v e to the two forms of c a p i t a l , p h y s i c a l and human. A s i m i l a r comparison i s made for e f f e c t i v e rates of pro t e c t i o n i n the next section. In the f i n a l s e c t i o n of the chapter the s p e c i a l case of resource int e n s i v e i n d u s t r i e s i s considered. The. Spearman rank c o r r e l a t i o n t e s t i n g technique was used through-out. The advantage of. rank order t e s t i n g i s that ranks are in v a r i a n t under any inonotonic transformation of the v a r i a b l e s . This i s c r u c i a l i n our assump-t i o n that average wage l e v e l s represent the return to human c a p i t a l per em-ployee only and that the non-wage share of value added represents returns to p h y s i c a l c a p i t a l only. The rank order technique tests the n u l l hypothesis that rankings are d i s t r i b u t e d randomly from a p a i r of independent v a r i a b l e s . The t e s t of s i g n i f i c a n c e of observed c o r r e l a t i o n c o e f f i c i e n t s r e f e r s to a p r o b a b i l i t y that a c r i t i c a l value would be observed when the parameters are independent. 46 47 Nominal T a r i f f P r o t e c t i o n and C a p i t a l Intensity One hundred and twenty-one i n d u s t r i e s were ranked by f a c t o r i n -t e n s i t y and by the degree of nominal p r o t e c t i o n received. Rank c o r r e l a -t i o n c o e f f i c i e n t s are presented i n Table 4. The c o r r e l a t i o n between to-t a l c a p i t a l - l a b o u r i n t e n s i t y and the height of nominal duties i s -0.345. When each form of c a p i t a l i s considered alone r e l a t i v e to labour the r e -l a t i o n s h i p s are only s l i g h t l y l e s s . They are a l l s i g n i f i c a n t l y d i f f e r e n t from zero, and the n u l l hypothesis that.no r e l a t i o n s h i p e x i s t s between nominal p r o t e c t i o n and f a c t o r i n t e n s i t i e s i s rejected. The c o e f f i c i e n t s are negative, i n d i c a t i n g that there i s a reverse r e l a t i o n s h i p between ca p i t a l - l a b o u r i n t e n s i t i e s and p r o t e c t i o n , or conversely, that there i s a p o s i t i v e a s s o c i a t i o n between labour i n t e n s i t y r e l a t i v e to both forms of c a p i t a l and the degree of nominal p r o t e c t i o n which an industry receives. While no s t a t i s t i c a l t e s t was found to test the d i f f e r e n c e s between the c o e f f i c i e n t s , i n t u i t i v e l y i t could be s a i d that the differences are not s i g n i f i c a n t . In Table 5 i n d u s t r i e s are separated i n t o three p r o t e c t i o n c l a s s e s , and f a c t o r i n t e n s i t y indices are c a l c u l a t e d both as simple averages and 3 ' '< weighted averages f o r each group. A r b i t r a r y nominal pr o t e c t i o n classes were established such that i n d u s t r i e s i n the high p r o t e c t i o n group had t a r i f f rates i n excess of 20 per cent, and i n d u s t r i e s i n the low p r o t e c t i o n group had t a r i f f rates l e s s than 10 per cent. 3 Simple averages were ca l c u l a t e d as the mean of f a c t o r i n t e n s i t y c o e f f i c i e n t s for the i n d u s t r i e s i n each group. Weighted averages were c a l -culated as the aggregated c a p i t a l per employee of a l l the i n d u s t r i e s i n a given group. Hence these c o e f f i c i e n t s were i n d i v i d u a l industry c o e f f i c i e n t s weighted by the employment of the industry. 48 The low t a r i f f group i s characterized by indices which are above average i n both human c a p i t a l - and p h y s i c a l c a p i t a l - l a b o u r i n t e n s i t i e s . Lowest indices of both forms of c a p i t a l are found i n the low t a r i f f group of i n d u s t r i e s . The average industry with a nominal t a r i f f less than 10 per cent requires three per cent more human c a p i t a l and 43 per cent more p h y s i c a l c a p i t a l per employee than the average f o r a l l manu-fa c t u r i n g (or eight per cent and 31 per cent more r e s p e c t i v e l y than the average i n d u s t r y ) . On the other hand, the average high t a r i f f industry involves. 13 per cent l e s s human c a p i t a l and 11 per cent l e s s p h y s i c a l c a p i t a l than the a l l manufacturing average (or eight per cent and 23 per cent l e s s r e s p e c t i v e l y than the average i n d u s t r y ) . TABLE 4 SPEARMAN RANK CORRELATION COEFFICIENTS BETWEEN NOMINAL TARIFF RATES AND CAPITAL INTENSITIES PRIMARY FACTOR RANK COEFFICIENT* Human Capital-Labour ^ ,340 Phys i c a l Capital-^Labour .311 T o t a l Capital-Labour ,345 * Spearman rank c o r r e l a t i o n c o e f f i c i e n t s are a l l s i g n i f i c a n t at the 1% l e v e l . 49 TABLE 5 CAPITAL-LABOUR INTENSITIES BY INDUSTRY NOMINAL PROTECTION GROUP PRIMARY FACTOR 121 MFG. INDUSTRIES NOMINAL TARIFF PROTECTION GROUP AVERAGE DEVIATION A B C HIGH MEDIUM LOW Human Capital-Labour Simple Average 0.95 Weighted Average 0.99 0.16 0.87 0.88 0.94 1.03 1.03 1.02 Ph y s i c a l Capital-Labour Simple Average 1.12 Weighted Average 1.01 0.60 0.89 0.79 1.05 1.00 1.43 1.15 T o t a l Capital-Labour Simple Average Weighted Average 1.04 1.00 0.35 0.88 0.83 1.01 1.02 1.23 1.08 Number of Industries 121 36 47 38 Average deviation of industry c o e f f i c i e n t s from the a l l manufac-t u r i n g average f o r each f a c t o r i n t e n s i t y measure also appear i n Table 5. When the range of c o e f f i c i e n t s between the high and low pr o t e c t i o n groups i s compared with t h i s measure i t further suggests that there i s l i t t l e d i f f e r e n c e i n the r e l a t i o n s h i p with nominal protection of the d i f f e r e n t 50 forms of capitals-labour i n t e n s i t y . The range of c o e f f i c i e n t s r e l a t i v e to the average de v i a t i o n i s almost the same f o r each f a c t o r ( i . e . , 0.16 to 0.16 and 0.54 to 0.60). Thus the 1963 Canadian t a r i f f structure tended to provide higher nominal rates f o r i n d u s t r i e s i n which human c a p i t a l and p h y s i c a l c a p i t a l requirements r e l a t i v e to the number of employees was low. While the num-ber of exceptions i s great there i s a s i g n i f i c a n t r e l a t i o n s h i p between labour use r e l a t i v e to c a p i t a l and the l e v e l of nominal pr o t e c t i o n that an industry receives, i t i s important, however, that each industry be considered i n d i v i d u a l l y . There can be no automatic assumption that an industry with, p h y s i c a l or human cap i t a l - l a b o u r i n t e n s i v e requirements w i l l be r e c e i v i n g low nominal t a r i f f s . E f f e c t i v e P r o t e c t i o n and C a p i t a l I n t e n s i t y If the t a r i f f serves to protect labour i n the Canadian economy, ei t h e r by increasing i t s r e l a t i v e returns or increasing demand and em-ployment opportunities, then a r e l a t i o n s h i p can be expected between the c a p i t a l - l a b o u r i n t e n s i t y of an industry and the e f f e c t i v e l e v e l of pro-t e c t i o n i t receives. The Samuelson-Stolper theorem suggests that i n countries where labour i s scarce r e l a t i v e to other primary inputs there w i l l be an incentive f o r labour to seek t a r i f f p r o t e c t i o n , and there w i l l be a tendency f o r r e a l rates of p r o t e c t i o n to have a bias towards r e l a t i v e -l y labour intensive i n d u s t r i e s . Two assumptions are involved here. F i r s t l y , that labour i s aware of the gains that can accrue to i t from higher p r o t e c t i o n i n those indus-t r i e s which are r e l a t i v e l y labour i n t e n s i v e ; and secondly, that there i s 51 an appreciation of the d i f f e r e n c e between the concept of nominal protec-t i o n of the value of shipments and e f f e c t i v e p r o t e c t i o n of value-added. I f the l a t t e r concept i s not recognized, and the former i s viewed as the important measure of p r o t e c t i o n , then one would expect high nominal rates to be pursued by labour int e n s i v e i n d u s t r i e s . The e f f e c t on the r e l a t i o n -ship between e f f e c t i v e rates and labour i n t e n s i t y would not be c l e a r . At any r a t e , Melvin and Wilkinson observed a high c o r r e l a t i o n between nominal and e f f e c t i v e rates of p r o t e c t i o n , and there should not be s u b s t a n t i a l d i f -ference i n r e s u l t s obtained using the two measures. When i n d u s t r i e s were ranked according to the degree of e f f e c t i v e p r o t e c t i o n they received and t h i s ranking correlated with the ranking of industry c a p i t a l - l a b o u r i n t e n s i t i e s the r e s u l t s shown i n Table 6 were ob-tained. Again the c o e f f i c i e n t s are s i g n i f i c a n t l y d i f f e r e n t from zero, and negative. High l e v e l s of r e a l protection tend to be associated with low l e v e l s of capitals-labour i n t e n s i t i e s . There does not appear to be any s i g -n i f i c a n t d i f f e r e n c e between the c o e f f i c i e n t s obtained, although the human cap i t a l - l a b o u r i n t e n s i t y r e l a t i o n s h i p may be s l i g h t l y stronger. The r e -l a t i o n s h i p s are only s l i g h t l y poorer for e f f e c t i v e protection than those obtained previously f o r nominal rates, although they are c o n s i s t e n t l y l e s s . Industries were grouped according to the degree of e f f e c t i v e pro-t e c t i o n they received, and simple average and weighted average factor i n -4 t e n s i t y c o e f f i c i e n t s were calculated as shown i n Table 7. A r e l a t i o n s h i p 4 Industries were separated i n t o three e f f e c t i v e p r o t e c t i o n classes a r b i t r a r i l y assigning i n d u s t r i e s with e f f e c t i v e rates greater than 30 per cent to the high protection group and i n d u s t r i e s with e f f e c t i v e rates less than 15 per cent to the low p r o t e c t i o n group. 52 between degree of e f f e c t i v e p r o t e c t i o n and labour i n t e n s i t y can be dis-tinguished. TABLE 6 SPEARMAN RANK CORRELATION COEFFICIENTS BETWEEN EFFECTIVE PROTECTION LEVELS AND FACTOR INTENSITIES PRIMARY FACTORS ' SPEARMAN COEFFICIENT* T o t a l Capital-Labour - 0.317 Human Capital-Labour - 0.326 Phy s i c a l Capital-Labour - 0.282 A l l s i g n i f i c a n t at the 1% l e v e l . The simple group average of t o t a l c a p i t a l - l a b o u r i n t e n s i t y i s higher i n the l e a s t protected group C than i n the highly protected group A, and 22 per cent higher than the average of a l l manufacturing. Both average human cap i t a l - l a b o u r i n t e n s i t y and average p h y s i c a l c a p i t a l - l a b -our i n t e n s i t y are below the a l l manufacturing average i n those i n d u s t r i e s where e f f e c t i v e p r otection i s high and above the a l l manufacturing average i n those i n d u s t r i e s where pr o t e c t i o n i s low. Thus i t can be said that the Canadian t a r i f f structure provides higher e f f e c t i v e rates of pro t e c t i o n to those i n d u s t r i e s which require more labour r e l a t i v e to other primary f a c t o r s . 53 There i s an i n d i c a t i o n that when e f f e c t i v e rates of pro t e c t i o n are being considered the human ca p i t a l - l a b o u r i n t e n s i t y of an industry i s more c l o s e l y r e l a t e d than i s ph y s i c a l c a p i t a l - l a b o u r i n t e n s i t y . Aver-age deviations of industry c o e f f i c i e n t s from the a l l manufacturing aver-ages also appear i n Table 7. The range of human ca p i t a l - l a b o u r i n t e n -s i t y c o e f f i c i e n t s between high and low pro t e c t i o n groups r e l a t i v e to the average deviation of a l l industry c o e f f i c i e n t s for t h i s factor i s a good deal greater ( i . e . , 0.17 to 0.16 Vs. 0.44 to 0.60) than the corres-ponding r e l a t i o n s h i p f o r p h y s i c a l c a p i t a l . The range of t h i s group co-e f f i c i e n t i s greater for human cap i t a l - l a b o u r i n t e n s i t y r e l a t i v e to the average deviation of industry c o e f f i c i e n t s than that observed f o r physi-c a l c a p i t a l - l a b o u r c o e f f i c i e n t s . Taken i n conjunction with the somewhat more s i g n i f i c a n t corre-l a t i o n c o e f f i c i e n t when human ca p i t a l - l a b o u r i n t e n s i t y alone i s considered i t suggests that at l e a s t where e f f e c t i v e rates of pro t e c t i o n are concerned human c a p i t a l - l a b o u r i n t e n s i t y may play a more important r o l e i n a f f e c t i n g the degree of pro t e c t i o n received. 54 TABLE 7 CAPITAL INTENSITY BY INDUSTRY EFFECTIVE PROTECTION GROUP EFFECTIVE PRIMARY FACTOR PROTECTION GROUP 121 MFG. AVERAGE A B C INDUSTRIES DEVIATION HIGH MEDIUM LOW Human Capital-Labour Simple Average 0.95 Weighted Average 0.99 Ph y s i c a l Capital-Labour Simple Average 1.12 Weighted Average 1.01 To t a l Capital-Labour Simple Average 1.04 Weighted Average 1.00 Number of Industries 121 0.16 0.89 0.90 0.93 1.00 1.06 1.03 0.60 0.93 0.81 1.08 1.02 1.37 1.11 0.35 0.91 0.85 1.01 1.01 1.22 1.07 40 43 38 Prote c t i o n and Resources Given the assumption that resource products are among the p r i -mary fa c t o r inputs i n manufacturing i n d u s t r i e s , the question can be asked what r o l e they play i n the fac t o r bias of the Canadian t a r i f f . I f resour-ces are relevant to the factor proportions c o r o l l a r y of Stolper and Sam-uelson, and i f they can be considered r e l a t i v e l y abundant among primary 55 factors i n Canada, then a negative c o r r e l a t i o n between resource-labour i n t e n s i t y and the degree of protection received should be observed. The d i s t r i b u t i o n of resource-labour i n t e n s i t y indices poses a problem, however, i n that i n d u s t r i e s are e i t h e r resource product using, or they are not. A large number of i n d u s t r i e s have zero resource-labour i n t e n s i t y c o e f f i c i e n t s , and t h i s poses problems i n ranking. I n i t i a l l y i t seemed more appropriate to i s o l a t e , rather a r b i t r a r i l y , those indus-t r i e s which could be considered primary manufacturing i n d u s t r i e s based on t h e i r resource-labour i n t e n s i t y . T h i r t y - f i v e i n d u s t r i e s were desig-nated primary manufacturing i n d u s t r i e s , and the remaining 86 were c l a s s i -f i e d as secondary manufacturing i n d u s t r i e s . Table 8 presents the d i s t r i b u t i o n of the 35 primary manufacturing i n d u s t r i e s among the three p r o t e c t i o n groups under the two types of pro-t e c t i o n . I t i s apparent that primary i n d u s t r i e s , i . e . , i n d u s t r i e s which are resource i n t e n s i v e r e l a t i v e to labour, tend to receive lower l e v e l s of p r o t e c t i o n compared to a l l manufacturing i n d u s t r i e s . Only four of the 35 i n d u s t r i e s f a l l i n t o the high nominal t a r i f f group. For e f f e c t i v e p r o t e c t i o n the d i s t r i b u t i o n i s l e s s skewed, but s t i l l only seven indus-t r i e s receive r e a l p r o t e c t i o n i n the highest group of r a t e s . ^ Primary manufacturing i n d u s t r i e s were defined as i n d u s t r i e s i n which the resource i n t e n s i t y index exceeded 0.25, which approximates $1000 worth of resource product input per employee. ^ I t w i l l be r e c a l l e d that to the extent that "resource products" can be considered as non-traded inputs the e f f e c t i v e p r o t e c t i o n rates c a l -culated by Melvin and Wilkinson f o r resource-labour i n t e n s i v e i n d u s t r i e s w i l l be overstated. I t i s l i k e l y that greater skewedness would occur with properly calculated e f f e c t i v e rates. 56 When the analysis of the relationship between capital-labour i n-tensity and protection i s confined to the 86 secondary manufacturing i n -dustries the strength of the association improves s i g n i f i c a n t l y . The correlation c o e f f i c i e n t s are presented i n Table 9. The source of the improved relationship apparently l i e s i n the higher corre l a t i o n between capital-labour i n t e n s i t y and the degree of pro-tection for secondary industries. The c o e f f i c i e n t for nominal rates i n -creases from - 0.340 to - 0.388, and for e f f e c t i v e rates from - 0.326 to -0.370. There i s no s i g n i f i c a n t change i n the correlation for physical capital-labour i n t e n s i t y when secondary manufacturing industries are con-sidered alone. TABLE 8 DISTRIBUTION OF RESOURCE PRODUCT INTENSIVE MANUFACTURING INDUSTRIES BY NOMINAL AND EFFECTIVE PROTECTION GROUPS NOMINAL PROTECTION EFFECTIVE PROTECTION PROTECTION GROUP RESOURCE-LABOUR INTENSIVE ALL MANUFACTURING (Primary Mfg.) (No. of Industries) RESOURCE-LABOUR INTENSIVE ALL MANUFACTURING (Primary Mfg.) (No. of Industries) A B C 4 11 20 36 47 38 7 10 18 40 43 38 Total 35 121 35 121 57 TABLE 9 RANK CORRELATION COEFFICIENTS BETWEEN PROTECTION LEVELS AND FACTOR INTENSITIES FOR CANADIAN SECONDARY MANUFACTURING INDUSTRIES PRIMARY FACTORS NOMINAL PROTECTION SPEARMAN COEFF.* EFFECTIVE PROTECTION * SPEARMAN COEFF. To t a l Capital-Labour - 0.388 0.370 Human Capital-Labour 0.415 0.380 Ph y s i c a l Capital-Labour - 0.319 0.295 A l l s i g n i f i c a n t at the 1% l e v e l . I f human ca p i t a l - l a b o u r i n t e n s i t y i s a good explanation of pro-t e c t i o n l e v e l s afforded secondary manufacturing, and resource-labour i n t e n -s i t y i s r e l a t e d to protection i n primary manufacturing i t i s possible that combining both c a p i t a l - and resource-labour i n t e n s i t i e s w i l l o f f e r a better r e l a t i o n s h i p with p r o t e c t i o n f o r a l l manufacturing i n d u s t r i e s than was pre-v i o u s l y obtained. Resource products and human c a p i t a l taken separately appear to be c l o s e l y associated with d i f f e r e n t groups of i n d u s t r i e s . Thus 58 i f resource product and human c a p i t a l inputs are combined to obtain an index of human c a p i t a l and resources per employee a cl o s e r a s s o c i a t i o n with pr o t e c t i o n i n a l l 121 i n d u s t r i e s would be expected than when each factor was considered separately. Table 10 presents c o r r e l a t i o n c o e f f i c i e n t s r e l a t i n g the d i f f e r e n t primary f a c t o r i n t e n s i t i e s separately and combined to both nominal and ef f e c t i v e p r o t e c t i o n . I t i s apparent that the e f f e c t of combining human c a p i t a l and resource products to obtain an array of human c a p i t a l and resource-in-t e n s i t y i n d i c e s i s to secure a bett e r r e l a t i o n s h i p with p r o t e c t i o n than that obtained f o r any fac t o r taken alone. Furthermore, when p h y s i c a l c a p i -t a l i s excluded from the index there i s no s i g n i f i c a n t d i f f e r e n c e i n the as s o c i a t i o n with prote c t i o n . The two factors human c a p i t a l and resources taken r e l a t i v e to labour would appear to be most important i n determining the pattern of pro t e c t i o n among Canadian manufacturing i n d u s t r i e s . The o v e r a l l r e l a t i o n s h i p i s s i g n i f i c a n t l y b e t t e r when nominal rates of pr o t e c t i o n are considered apparently because a low c o r r e l a t i o n e x i s t s between e f f e c t i v e rates and resource-labour i n t e n s i t y . I t w i l l be r e c a l l e d , however, that i t i s l i k e l y that e f f e c t i v e p r o t e c t i o n rates of resource-labour int e n s i v e i n d u s t r i e s are overstated, and t h i s i s l i k e l y to have a f f e c t e d t h i s c o r r e l a t i o n . 59 TABLE 10 RANK CORRELATION COEFFICIENTS BETWEEN PRIMARY FACTOR INTENSITIES AND PROTECTION LEVELS FOR ALL MANUFACTURING INDUSTRIES . FACTOR INTENSITY RANK CORRELATION COEFFICIENTS NOMINAL PROTECTION EFFECTIVE PROTECTION Human Capital-Labour - 0.340 - 0.326 Phy s i c a l Capital-Labour - 0.311 0.282 Resource-Labour 0.318 - 0.208 T o t a l C a p i t a l and Resource-Labour Human C a p i t a l and Resource-Labour - 0.577 - 0.494 0.400 - 0.387 A l l s i g n i f i c a n t at the 1% l e v e l except which i s s i g n i f i c a n t at 5%. F i n a l l y , Table 11 presents rank c o r r e l a t i o n c o e f f i c i e n t s for the cross r e l a t i o n s h i p s among the d i f f e r e n t measures of f a c t o r i n t e n s i t y and between the two measures of pro t e c t i o n . I t i s i n t e r e s t i n g to note the r e l a t i v e l y high c o r r e l a t i o n between p h y s i c a l c a p i t a l - l a b o u r i n t e n s i t y and human c a p i t a l - and resource-labour i n t e n s i t i e s taken separately and com-bined. When taken i n conjunction with the s i m i l a r r e l a t i o n s h i p s with pro-t e c t i o n l e v e l s of total c a p i t a l and resource-labour and of human c a p i t a l and resources-labour i n t e n s i t i e s t h i s suggests that p h y s i c a l c a p i t a l - l a b o u r 60 i n t e n s i t y i s not i n i t s e l f a determinant of pro t e c t i o n patterns. Rather, p h y s i c a l c a p i t a l i s associated with the r e l a t i v e l y i n t e n s i v e use of e i t h e r human c a p i t a l or resources. The high c o r r e l a t i o n between nominal and e f f e c t i v e p r o t e c t i o n rates of 0.845 explains why more s i g n i f i c a n t differences were not ob-tained between c o r r e l a t i o n s using each of the two pro t e c t i o n measures. 61 TABLE 11 CROSS RANK CORRELATIONS BETWEEN FACTOR INTENSITY MEASURES AND BETWEEN PROTECTION MEASURES A. FACTOR INTENSITIES RANK CORRELATION COEFFICIENTS* FACTOR INTENSITY , . HK/L PK/L K/L R/L Human Capital-Labour (HK/L) Ph y s i c a l Capital-Labour (PK/L) T o t a l Capital-Labour (K/L) Resource-Labour (R/L) Human C a p i t a l and Resource-Labour T o t a l C a p i t a l and Resource-Labour B. PROTECTION RANK CORRELATION COEFFICIENT* EFFECTIVE RATES Nominal T a r i f f s 0.845 * * * A l l s i g n i f i c a n t at 1% except 0.730 0.773 0.965 0.139** 0.359 0.330 0.583 0.618 0.847 0.855 0.613 CHAPTER V SUMMARY AND IMPLICATIONS The r e s u l t s of the empirical work i n the previous chapter provide some understanding of the Canadian t a r i f f . Before considering the e f f e c t s of the t a r i f f s t ructure i t would serve w e l l to summarize some of the more important fi n d i n g s . (1) P r o t e c t i o n and Labour In t e n s i t y There i s a s i g n i f i c a n t r e l a t i o n s h i p between the degree of protec-t i o n which an industry receives and the use of labour i n that industry r e -l a t i v e to a l l other primary f a c t o r inputs. This i s true both when labour i s considered r e l a t i v e to each of the three primary factors i d e n t i f i e d i n t h i s study and when labour i s considered r e l a t i v e to the t o t a l of a l l the primary factors which are relevant to the Samuelson-Stolper argument. In Table 12 Spearman rank c o r r e l a t i o n c o e f f i c i e n t s for the r e -l a t i o n s h i p between the two measures of p r o t e c t i o n and measures of r e l a t i v e labour i n t e n s i t y appear. I t i s apparent from t h i s that protection i n Cana-dian manufacturing i s negatively r e l a t e d to the i n t e n s i t y of a l l three primary factors taken separately r e l a t i v e to labour. There i s very l i t t l e d i f f e r e n c e i n the c o r r e l a t i o n s obtained f o r each of the three f a c t o r s . In only one case, that of the a s s o c i a t i o n between resource-labour i n t e n s i t y and e f f e c t i v e protection l e v e l s does the d i f f e r e n c e seem to be s i g n i f i c a n t . There i s no s t a t i s t i c a l t e s t of the s i g n i f i c a n c e of differences i n rank c o r r e l a t i o n c o e f f i c i e n t s . However, -0.326 and -0.282 are both s i g n i f i -cantly d i f f e r e n t from zero at the 1% l e v e l , while -0.208 i s s i g n i f i c a n t only at 5%. 62 63 TABLE 12 SUMMARY OF CORRELATION COEFFICIENTS BETWEEN PRIMARY FACTOR INTENSITY AND PROTECTION LEVELS FACTOR INTENSITY RANK CORRELATION COEFFICIENTS NOMINAL PROTECTION EFFECTIVE PROTECTION Human Capital-Labour P h y s i c a l Capital-Labour Res our ce-Lab our T o t a l Capital-Labour T o t a l C a p i t a l and Resources-Labour Human C a p i t a l and Resource-Labour 0.340 0.311 0.318 0.345 .0.476 0.494 - 0.326 r- 0.282 - 0.208** - 0.317 T-. 0.400 - 0,387 A l l s i g n i f i c a n t at the 1% l e v e l , except at the 5% l e v e l . In Chapter I I c e r t a i n questions were rai s e d concerning the r e l e -vance of the three primary f a c t o r s : human c a p i t a l , p h y s i c a l c a p i t a l and resources, considered r e l a t i v e to labour, i n comparative advantage-f a c t o r endowment trade theory. There has been some controversy i n the l i t e r a t u r e over exactly which primary factors are important i n consider-ations of the present type. Several combination of factors are suggested i n a v a r i e t y of sources. The most commonly used approach i n d e r i v i n g estimates of e f f e c t i v e 64 protection, for example, has been to include only "value added" repre-2 senting returns to labour and human and physical c a p i t a l . This suggests the use of Total Capital-Labour i n t e n s i t y as the important o v e r - a l l measure. Recently, however, the relevance of physical c a p i t a l i n de-termining trade flows has been challenged, and i t has been suggested that only the Human Capital-Labour i n t e n s i t y measure i s relevant to the pre-3 sent type of analysis. And f i n a l l y the importance of resources i n the manufactures has received some mention i n the l i t e r a t u r e , but has largely 4 been ignored i n empirical studies. I f resources are relevant, then two more measures of o v e r - a l l i n t e n s i t y , Total Capital and Resource-Labour and Human Capital and Resource-Labour are possible alternatives. Thus, there are at least four measures of the t o t a l primary factor i n t e n s i t y r e l a t i v e to labour, depending upon which primary factors are relevant to trade patterns i n the Canadian setting. -Correlation c o e f f i c i e n t s for each of these alternatives with the two measures of protection appear i n Table 12. In a l l cases the c o e f f i -cient i s negative and s i g n i f i c a n t l y d i f f e r e n t from zero at the one per. cent l e v e l . Thus, industries i n which the input of relevant primary factors (however defined) r e l a t i v e to labour i s high tend to be associated 2 Balassa, °P- c i t . ; Melvin and Wilkinson, op cit. 3 . . Basevi, op. cit.; Keesing, op. cit. 4 . . . Lary, op.cit.; Wilkinson, op. cit.; Vanek, op. cit. 6 5 with low l e v e l s of both nominal and e f f e c t i v e p r o t e c t i o n . Industries i n which the t o t a l input of the relevant primary factors r e l a t i v e to labour i s low tend to receive the highest l e v e l s of protection provided. A comparison of the c o r r e l a t i o n obtained using the four a l t e r n a t i v e s d i s c l o s e s two i n t e r e s t i n g points. F i r s t , the c o r r e l a t i o n c o e f f i c i e n t s ob-tained when resource products are included among the primary inputs appear to be s i g n i f i c a n t l y b e t t e r than when they are not. The c o r r e l a t i o n c o e f f i -cients obtained f o r T o t a l C a p i t a l and Resource-Labour and Human C a p i t a l and Resource-Labour are somewhat better than those obtained f o r T o t a l C a p i t a l -Labour and Human Capital-Labour, r e s p e c t i v e l y . Secondly, there does not appear to be any s i g n i f i c a n t d i f f e r e n c e i n the c o r r e l a t i o n s when p h y s i c a l c a p i t a l i s excluded from the d e f i n i t i o n of non-traded primary inputs. In thi s regard there i s l i t t l e d i f f e r e n c e i n the c o r r e l a t i o n c o e f f i c i e n t s ob-tained f o r Human Capital-Labour and Human C a p i t a l and Resource-Labour as opposed to T o t a l Capital-Labour and T o t a l C a p i t a l and Resource-Labour, re-sp e c t i v e l y . • „ (2) Primary and Secondary Manufacturing When manufacturing i n d u s t r i e s were separated i n t o two groups, a r e -source product processing group and a secondary manufacturing group, accord-i n g to the degree of resource-labour i n t e n s i t y , two things were observed. F i r s t , i t was noted i n Table 8 that with few exceptions primary manufactur-ing i n d u s t r i e s ( i . e . , i n d u s t r i e s which are resource product intensive r e l a -t i v e to labour) tend to receive low l e v e l s of protec t i o n . Second, Table 9 i n d i c a t e d that i s o l a t i o n of secondary manufacturing i n d u s t r i e s s i g n i f i c a n t l y improves the c o r r e l a t i o n of human ca p i t a l - l a b o u r i n t e n s i t y with protection 66 i s unchanged. Thus pro t e c t i o n appears to be negatively r e l a t e d to human c a p i t a l i n secondary manufacturing and resource products i n primary manu-fa c t u r i n g i n d u s t r i e s . I t would seem that together these two factors taken r e l a t i v e to labour account for the highly s i g n i f i c a n t c o r r e l a t i o n between t o t a l c a p i t a l and resource-labour i n t e n s i t y and the degree of t a r i f f pro-t e c t i o n received i n a l l manufacturing i n d u s t r i e s . (3) Nominal and E f f e c t i v e Protection Nominal t a r i f f rates are everywhere more hig h l y c o r r e l a t e d with f a c -tor i n t e n s i t i e s than are e f f e c t i v e rates. The differences i n c o r r e l a t i o n are not s u b s t a n t i a l but everywhere i n the same d i r e c t i o n . Considering the high c o r r e l a t i o n observed between the ranking of nominal and e f f e c t i v e rates of p r o t e c t i o n the minor d i f f e r e n c e i s not s u r p r i s i n g . Only i n the case of resource products (a c o e f f i c i e n t of -0.318 f o r nominal rates as compared to -0.208 for e f f e c t i v e rates) i s there a large d i f f e r e n c e , and t h i s appears to a f f e c t the c o r r e l a t i o n of e f f e c t i v e p r o t e c t i o n with t o t a l c a p i t a l and r e -source-labour i n t e n s i t y . What i s s u r p r i s i n g , however, i s that nominal t a r -i f f s are more hig h l y correlated. Although i t i n no way upsets the findings of the present study, i t i s unexplainably contrary to expectations. Labour Bias of P r o t e c t i o n -The r e s u l t s of the present study c l e a r l y show that the assumption of a labour bias i n the structure of the Canadian t a r i f f has been a v a l i d one. There i s a highly s i g n i f i c a n t r e l a t i o n s h i p between labour i n t e n s i t y r e l a t i v e to whatever other primary inputs are considered relevant and the l e v e l of r e a l p r o t e c t i o n which an industry receives. Table 13 sum-marizes the nature of the b i a s . Industries r e c e i v i n g a high degree of e f f e c t i v e p r o t e c t i o n ( i . e . , e f f e c t i v e rates i n excess of 30 per cent), 67 i TABLE 13 WEIGHTED FACTOR INTENSITIES INDICES FOR INDUSTRIES RECEIVING RELATIVELY HEAVY AND RELATIVELY LIGHT EFFECTIVE PROTECTION FROM CANADIAN TARIFFS PRIMARY FACTOR HIGH LOW PROTECTION PROTECTION (Protection Group A) (Protection Group C) Human C a p i t a l 0.90 Ph y s i c a l C a p i t a l 0.81 A l l C a p i t a l 0.85 Resources Products 0.27 T o t a l C a p i t a l and Resources 0.67 T o t a l Human C a p i t a l and Resources 0,59 No. of Industries ^ 40 1.03 1.11 1.07 1.17 1.10 1.10 38 require an average 10 per cent l e s s human c a p i t a l , 19 per cent le s s physi-c a l c a p i t a l , and 73 per cent le s s resource products per employee than the average f o r a l l jnanufacturing, Conversely, low p r o t e c t i o n i n d u s t r i e s C e f f e c t i v e rates l e s s than 15 per cent) are higher than average users of a l l three primary f a c t o r s , using three per cent, 11 per cent, and 17 per cent more of each r e s p e c t i v e l y per employee than the a l l manufacturing average. 6 8 Thus, there would appear to be some v a l i d i t y to the argument that the Canadian t a r i f f has been designed along the l i n e s predicted by the Samuelson-Stolper model. I f labour i s the scarce f a c t o r i n Cana-dian manufacturing, the t a r i f f has been erected so as to most heavily protect i n d u s t r i e s intensive i n the use of that scarce f a c t o r . I t i s l i k e l y , then, that the t a r i f f has served to provide higher money wages than would otherwise be the case."' While t h i s i n no way supports the arguments put forward i n defense of the Canadian t a r i f f , such as the "population sustaining" type of Barber and Mackintosh, i t does v e r i f y t h e i r i m p l i c i t assumption that the t a r i f f contains a labour b i a s . Factor A l l o c a t i o n The nature of the labour bias of the t a r i f f implies that protec-t i o n has allowed a large sector of labour intensive i n d u s t r i e s than would otherwise be the case. This suggests that e l i m i n a t i o n of the t a r i f f would stimulate an expansion of resource- and ca p i t a l - l a b o u r intensive i n d u s t r i e s . There would be a corresponding s h i f t of r e l a t i v e demand and returns from labour to the other primary f a c t o r inputs. While the d i r e c t i o n of th i s s h i f t i s known, a p o s i t i v e statement about the s i z e of any s h i f t that might take place i n the event that t a r i f f s were removed cannot be made. This i s a s t a t i c argument since i t compares money wages at a s p e c i f i c point i n time f o r the same economy i n free trade and pro t e c t i o n s i t u a t i o n s . I t does not consider the dynamic e f f e c t s which might have occurred had the t a r i f f never existed. The economic growth implications of the t a r i f f i s one e f f e c t which i s considered l a t e r . 69 The t a r i f f permits higher money wages f o r labour, and, to the extent that they are immobile, lower returns to p h y s i c a l c a p i t a l , human c a p i t a l and resources than would otherwise be the case. The extent to which returns to primary factors other than labour have been a f f e c t e d by the t a r i f f i s not e a s i l y measured. But i t i s c l e a r that the t a r i f f has reduced the demand f o r those f a c t o r s , and consequently to the extent that they are untraded the return primary inputs other than u n s k i l l e d l a b -our. Population, Human C a p i t a l , and the T a r i f f In l i g h t of the above, Barber's "population s u s t a i n i n g " argument for the Canadian t a r i f f has an I n t e r e s t i n g consequence. The t a r i f f , i t has been shown above, displays a bias against human c a p i t a l , the in v e s t -ment i n education and s k i l l s , and i n favour of labour. This indicates that the t a r i f f has given r i s e to an increased emphasis i n those indus-t r i e s which are labour i n t e n s i v e r e l a t i v e to human c a p i t a l ( i . e . , induss-t r i e s where r e l a t i v e l y u n s k i l l e d labour i s required). Those i n d u s t r i e s which require r e l a t i v e l y high inputs of human s k i l l s are somewhat contrac-ted as a r e s u l t of the t a r i f f . The s h i f t i n returns between labour and human c a p i t a l caused by the t a r i f f i s conceptually d i f f e r e n t from the s h i f t between labour and e i t h e r of the other primary f a c t o r s , because human c a p i t a l i s embodied i n labour i t s e l f . The s h i f t i n g of returns takes place between d i f f e r e n t segments of the labour f o r c e , between those possessing r e l a t i v e l y large amounts of human c a p i t a l and those who do not. Thus, to the extent that the t a r i f f 70 has shifted production away from r e l a t i v e l y human capital-labour inten-sive i n d u s t r i e s , there has been a s h i f t i n g of money returns from r e l a -t i v e l y s k i l l e d labour to the un s k i l l e d sector. Barber's argument i s then one which suggests that the Canadian 6 t a r i f f tends to sustain a r e l a t i v e l y u n s k i l l e d population. To the ex-tent that i t i s not mobile educated and s k i l l e d labour has borne much of the burden imposed by the t a r i f f i n the form of lower returns to human c a p i t a l . The t a r i f f has tended to support that portion of the labour force which i s r e l a t i v e l y u n s k i l l e d . Because human c a p i t a l i s t i e d to labour i t tends to be as immobile as that factor. I t i s l i k e l y , however, that w i t h i n the labour force the educated and s k i l l e d comprise the most mobile element. Thus there i s a l i m i t to the extent which the t a r i f f burden can be shif t e d onto this element before migration w i l l take place. I t i s u n l i k e l y that such mobility i s perfect, and hence human ca p i t a l i s l i k e l y to bear some of the burden of the t a r i f f . The p o s s i b i l -i t y of emigration w i l l l i m i t the extent. In the process the t a r i f f w i l l stimulate the loss of human c a p i t a l through emigration.^ The population which remains w i l l be endowed with less human c a p i t a l than i t would have been without the t a r i f f . I t could be said that the quality of the Canadian labour force w i l l tend to be less than i t would be i n a free trade s i t u a t i o n . ^"Relatively u n s k i l l e d " i n r e l a t i o n to what i t might be without the t a r i f f . ^John Porter observed that "although we do not know the educational standards of Canadians who emigrate, i m p r e s s i o n i s t i c a l l y i t might be said that there i s a considerable loss of highly educated and s k i l l e d . " The Vertical Mosaic (Toronto: University of Toronto Press, 1965), p. 39. 71 The burden imposed by the t a r i f f on the educated and s k i l l e d i n the labour force has other i n t e r e s t i n g i m p l i c a t i o n s . I t i s p o s s i b l e , f o r instance, that the e f f e c t of the t a r i f f has some r e l a t i o n to the s i g n i f i c a n t d i f f e r e n c e i n average educational l e v e l s which are attained g i n the U.S. and Canada, This i s important i f one considers the impor-tance placed by Wilkinson and others on the "tech n o l o g i c a l change" theory i n explaining trade both among the developed countries and between the 9 developed and underdeveloped worlds. I f educations-training l e v e l s can act as a crude proxy f o r the degree of t e c h n i c a l advance i n an i n d u s t r y , ^ then the tendency of Canadian t a r i f f s to protect u n s k i l l e d labour may have a f f e c t e d the nature of Canada's i n t e r n a t i o n a l trade. I f Canada i s to play an innovative r o l e i n the product development cycle then educa-t i o n a l advancement should be promoted rather than r e s t r i c t e d . A second i m p l i c a t i o n of the t a r i f f ' s e f f e c t on the stock of human c a p i t a l i s the long-run growth consideration. P r o d u c t i v i t y growth i s known to be dependent to a large degree on education."^ A commercial 8 Gordon W. Bertram, The Contribution of Education to Economic Growth^ S t a f f Study No. 12, Economic Council of Canada (Ottawa: Queen's P r i n t e r , 1965), p. 21, 9 This theory suggests that much trade i s based on the technologi-c a l lead of a country i n c e r t a i n products or processes. The argument i s expanded i n Wilkinson, op. cit., pp. 113^-120. "^A connection between e d u c a t i o n - s k i l l l e v e l s and the degree of innovation found i n an industry was suggested i n Wilkinson, ibid., p. 116, "^Bertram, op. cit,3 pp. 54-56. 72 p o l i c y -which tends to reduce the accumulation of human c a p i t a l e i t h e r be-cause of reduced incentives to acquire s k i l l s or because of the emigration of human c a p i t a l w i l l act to reduce the rate of economic growth. Canadian P r o t e c t i o n and the Less Developed Countries Reference was made i n the f i r s t chapter to the contention that developed countries tend to provide greater p r o t e c t i o n f o r those manufac-tu r i n g i n d u s t r i e s which are of export i n t e r e s t to the less developed coun-t r i e s . Those i n t e r e s t e d i n the p l i g h t of the underdeveloped world argue that t h i s p o l i c y discriminates against le s s developed countries at a time when access to the markets of the advanced economies i s c r u c i a l to t h e i r .12 economic growth. The r e s u l t s of the present study support t h i s view i n r e l a t i o n to the Canadian t a r i f f . Manufactures which are of i n t e r e s t to the less deve^ loped world tend to be those which are labour int e n s i v e r e l a t i v e to both 13 p h y s i c a l and human c a p i t a l . These are the manufacturing i n d u s t r i e s 14 which receive the highest l e v e l s of pr o t e c t i o n i n Canada. R e l a t i v e l y u n s k i l l e d labour, the primary f a c t o r which the t a r i f f protects, i s the 12 Trade i n manufactured products i s becoming i n c r e a s i n g l y impor-tant to underdeveloped countries. Opportunities to obtain increased amounts of f o r e i g n exchange through t r a d i t i o n a l primary exports are severely l i m i t e d and the export of manufactured products which require i n t e n s i v e use of un-s k i l l e d labour i s seen to o f f e r them greater p o t e n t i a l . ^ L a r y , op. cit. 3 p. 4. 14 This analysis supports the view on t h i s subject of Gopal Yadav, "Discriminating Aspects of Canada's Imports of Manufactured Goods from the Developed and the Less Developed Countries," Discussion Peeper No. 32 (Uni-73 f a c t o r which i s r e l a t i v e l y abundant (and hence the basis of comparative advantage) i n the underdeveloped countries. P h y s i c a l G a p i t a l as a Primary Factor There i s some evidence i n the present study to suggest that, with respect to the Canadian case at l e a s t , p h y s i c a l c a p i t a l i s not a relevant primary f a c t o r i n the Samuelson-Stolper argument. I t would appear that while p h y s i c a l c a p i t a l - l a b o u r i n t e n s i t y i s s i g n i f i c a n t l y c o r r e l a t e d with p r o t e c t i o n l e v e l s t h i s r e l a t i o n s h i p i s an i n d i r e c t e f f e c t of a high corre-l a t i o n between p h y s i c a l c a p i t a l - l a b o u r i n t e n s i t y and human c a p i t a l - and resource-labour i n t e n s i t i e s . Human ca p i t a l - l a b o u r i n t e n s i t y seems to ex-p l a i n the pattern of pro t e c t i o n among secondary i n d u s t r i e s f a i r l y w e l l , while p r o t e c t i o n i n primary manufacturing i s determined by resource-labour i n t e n s i t y . The pattern of o v e r - a l l p r o t e c t i o n i n manufacturing i n d u s t r i e s would appear to be best explained by the degree of human c a p i t a l and r e ^ source-labour.intensity. The i n c l u s i o n of p h y s i c a l c a p i t a l i n o v e r - a l l factor i n t e n s i t y measures appears to make l i t t l e d i f f e r e n c e i n rank corre-l a t i o n s with the two measures of protection. Taking t h i s evidence i n conjunction with Wilkinson's findings concerning Canadian trade patterns i t suggests that p h y s i c a l c a p i t a l i s not one of the relevant primary factors which can bear some of the burden yers.ity of B r i t i s h Columbia: Department of Economics, 1969), p. 35, against the claim put forward by Grant' Reuber, Canada's Interest in the Trade Problems of Less-Developed Countries (Montreal: P r i v a t e Planning A s s o c i a t i o n of Canada, 1964). 74 I l of labour protection. Both, suggest that the high degree of inter-national mobility of physical capital exclude i t from the group of primary factors which are important determinants of Canada's comparative advantage position. This supports recent studies which contend that labour, in both quantitative and qualitative terms, is the only relevant factor in determining trade. If physical capital is not relevant among the immobile primary factors then estimates of effective protection should be made which apply only to the labour share of value added. Calculations should exclude the Non-Wage share since this portion w i l l not, i f the return to physical capital i s internationally determined, be affected by t a r i f f s . Thus the Melvin-Wilkinson effective rates used i n the present study may be underestimated. Rates for those industries which are par-ti c u l a r l y physical capital-labour intensive w i l l be underestimated more than industries which are not. The effect of the coefficients of correla-tion which were obtained previously between other primary factor intensi-ties and the corrected effective rates is unclear. It is l i k e l y that Wilkinson observed that "the fact that some of these processes are (physical) capital-intensive is really of secondary importance in de-termining what is exported and what is not." Op. cit., p. 107, "^Donald Keesing, op. cit., p. 287 stressed the role of labour s k i l l s in determining the pattern of trade flows in manufactured products not tied to resources. Basevi, op. cit., considered physical capital a relatively mobile factor, and calculated his effective rates of protection on the basis of labour input only. Tariffs protected only the wages share of value added in his model. 75 the ranking of e f f e c t i v e rates would a l t e r ; but without intensive study on an industry-by-industry b a s i s , i t i s not possible to foresee the end r e s u l t . Resource Products as a Primary Factor Resource product i n t e n s i t y measures were included i n the present study i n the hope that the r e s u l t s might suggest the relevance of this f actor i n a f f e c t i n g trade patterns. The f a i l u r e of other trade studies to i s o l a t e the r o l e of resources has met with c r i t i c i s m i n the l i t e r a t u r e . I t at f i r s t seemed u n l i k e l y that resources are relevant to the Canadian r manufacturer i n that i t i s the products of resources, and not the resour-ces themselves, which enter i n t o the production functions of manufacturing i n d u s t r i e s as material inputs. If these "resource products" are i n t e r -n a t i o n a l l y mobile as are other material inputs then they should not be important i n a f f e c t i n g trade patterns of manufactured commodities. I t was suggested, however, that to a large extent these "resource products" could not be considered mobile and hence might be included among the primary factors upon which the burden of the t a r i f f might be placed. The present analysis supports t h i s view. Resource-labour i n t e n -s i v e i n d u s t r i e s tend to receive low l e v e l s of p r o t e c t i o n from the t a r i f f . A r a t i o n a l e of t h i s phenomenon i s that the t a r i f f i s being used to s h i f t returns i n favour of labour, and away from resource products. I f t h i s i s the case then resource products must be somewhat immobile and hence can 76 be included among the primary factors which a f f e c t trade patterns. I f resource products should be included among the non-trade inputs then the e f f e c t i v e rates calculated by Melvin and Wilkinson w i l l be overestimated. E f f e c t i v e rates of pr o t e c t i o n i n manufacturing i n -dustries which are resource-labour intensive w i l l be overestimated more than those which are not. Since resource-labour i n t e n s i t y i s not d i s t r i b u t e d i n a very consistent pattern ( i n d u s t r i e s tend to have a high i n t e n s i t y or zero), some industry estimates w i l l be i n e r r o r , others w i l l not. E f f e c t i v e p r o t e c t i o n estimates of those i n d u s t r i e s which the previous chapter denoted as primary manufacturing w i l l be overestimated, while those of secondary manufacturing w i l l not. I t i s l i k e l y that the a s s o c i a t i o n between corrected e f f e c t i v e p r o t e c t i o n rates and resource-labour i n t e n s i t y w i l l be somewhat stronger than previously. I t was noted that t h i s c o r r e l a t i o n d i f f e r e d s i g n i f i c a n t -l y from the c o r r e l a t i o n with nominal rates. Using corrected protection estimates f o r resource-labour in t e n s i v e i n d u s t r i e s should put the corre-l a t i o n of e f f e c t i v e rates with resource-labour i n t e n s i t y and with the t o t a l c a p i t a l and resource-labour i n t e n s i t y more i n l i n e with those corre-l a t i o n s obtained for nominal rates. Wilkinson observed that resource use seem to influence trade patterns, i n that resource product in t e n s i v e i n d u s t r i e s tend to be ex-port i n g i n d u s t r i e s . Op. cit., p. 106. 77 Some Concluding Remarks The present analysis i s somewhat l i m i t e d by the assumption made that a l l resource products are homogeneous. Obviously not a l l commodities which have been included i n the d e f i n i t i o n of resource products are immobile, non-traded inputs. Further study i s required to i s o l a t e those resource products which should be included and those which should not. However, the r e s u l t s of the present e f f o r t have i n d i -cated the importance of considering t h i s element, and have placed some 18 doubt on the v a l i d i t y of work which has ignored t h i s f a c t o r . Further study i s also required i n t o the nature of p r o t e c t i o n provided manufacturing i n d u s t r i e s . E a r l y i n the present study i t was assumed that t a r i f f s and other forms of p r o t e c t i o n would follow p a r a l l e l patterns. What i s l i k e l y , however, i s that d i f f e r e n t forms of p r o t e c t i o n are substitutes for one another such that where, f o r example, transpor-t a t i o n costs of a commodity are high the need for high t a r i f f s w i l l not be great. I t i s l i k e l y that the p r o t e c t i o n provided by n o n - t a r i f f meas-ures i s not constant to a l l i n d u s t r i e s , and that there would be some ad-justment i n the ranking of i n d u s t r i e s observed i n the present study. A f u l l e r a n a lysis should consider the aggregate of a l l types of p r o t e c t i o n , but time and resources r e s t r i c t e d the present study to a simple measure of p r o t e c t i o n . The Melvin-Wilkinson estimates of e f f e c t i v e production, f o r example. B I B L I O G R A P H Y A. BOOKS Bertram, Gordon W. The Contribution of Education to Economic Growth, S t a f f Study No. 12, Economic Council of Canada. Ottawa: Queen's P r i n t e r , 1965. Caves, Richard E. and Holton, Richard H. The Canadian Economy. Cambridge, Mass.: Harvard U n i v e r s i t y Press, 1959. Dales, J . H. The Protective Tariff in Canada's Development. Toronto: U n i v e r s i t y of Toronto Press, 1966. English, H. Edward. Industrial Structure in Canada's International Com-p e t i t i v e Position. Montreal: P r i v a t e Planning A s s o c i a t i o n of Canada, Canadian Trade Committee, 1964. Heckscher, E l i . "The E f f e c t of Foreign Trade.on the D i s t r i b u t i o n of In-come," i n American Economic Review, Readings in the Theory of Inter-national Trade. P h i l a d e l p h i a : B l a k i s t o n and Co., 1949. (Reprint of o r i g i n a l p u b l i c a t i o n i n Swedish, 1919). Johnson, Harry G. Economic Policies Toward Less Developed Countries. Washington, D.C.: The Brookings I n s t i t u t i o n , 1967. Lary, Hal B. Imports of Manufactures from Less Developed Countries. New York: National Bureau of Economic Research, 1968. Mackintosh, W. A. The Economic Background of Dominion-Provincial Relations. Ottawa: King's P r i n t e r , 1939. 0 - ' Melvin, James R. and Wilkinson, Bruce W. Effective Protection in the Cana-dian Economy, Special Study No. 9, Economic Council of Canada. Ottawa: Queen's P r i n t e r , 1968-78 79 Minhas, B. S. An International Comparison of Factor Costs and Factor Use. Amsterdam: North Holland, 1963. Ohlin, B e r t i l . Interregional and International Trade. Cambridge, Mass.: Harvard U n i v e r s i t y Press, 1967. Porter, John. The Vertical Mosaic. Toronto: U n i v e r s i t y of Toronto Press, 1965. Reuber, Grant L. Canada's Interest in the Trade Problems of Less-Developed Countries. Montreal: P r i v a t e Planning A s s o c i a t i o n of Canada, Canadian Trade Committee, 1964. Salant, Walter S. and Vacarra, Beatrice N. Import Liberalization and Employment. Washington, D.C: The Brookings I n s t i t u t i o n , 1961. T r a v i s , William P. The Theory of Trade and Protection. Cambridge, Mass.: Harvard U n i v e r s i t y Press, 1964. Vacarra, Beatrice N. Employment and Output in Protected Industries. ington, D.C: The Brookings I n s t i t u t i o n , 1960. Vanek, J. The Natural Resource Content of United States Foreign Trade 1870 - 1955. Cambridge, Mass.: Harvard U n i v e r s i t y Press, 1963. Wilkinson, Bruce W. Canada's International Trade: An Analysis of Recent Trends and Patterns. Montreal: P r i v a t e Planning A s s o c i a t i o n of Canada, Canadian Trade Committee, 1968. Wonnacott, R. J . and Wonnacott, Paul. Free Trade Between the United States and Canada. Cambridge, Mass.: Harvard U n i v e r s i t y Press, 1967. Young, John J . Canadian Commercial Policy. Ottawa: Queen's P r i n t e r , 1957. B. PERIODICALS Balassa, Bela. " T a r i f f Protection i n I n d u s t r i a l Countries: An Evaluation," Journal of Political Economy, LXXIII (December, 1965), pp. 573-594. 80 Balassa, Bela. "The Structure of Prot e c t i o n i n the I n d u s t r i a l Countries and i t s E f f e c t on Exports of Processed Goods from Developing Nations," United Nations Conference on Trade and Development TD/B/C.2/36 (May 25, 1967). . "The Impact of the I n d u s t r i a l Countries' T a r i f f Struc-tures on t h e i r Imports of Manufactures from Less-Developed Areas," Economica}XXXIV (November, 1967), pp. 372-383. B a l l , David S. "United States E f f e c t i v e T a r i f f s and Labor's Share," Journal of Political Economy, LXXV ( A p r i l , 1967), pp. 183-187. Barber, Clarence. "Canadian T a r i f f P o l i c y , " Canadian Journal of Econo-mics and Political Science, XXI (November, 1955), pp. 513-530. Basevi, Giorgio. "The United States T a r i f f Structure," Review of Economics and Statistics, XLVIII (May, 1966), pp. 147-160. Bhagwati, Jagdish. More on the Equivalence of T a r i f f s and Quotas," Ameri-can Economic Review, LVIII (March, 1968), pp. 142-146. Corden, W. M. "The Structure of a T a r i f f System and the E f f e c t i v e Pro-t e c t i v e Rate," Journal of Political Economy, LXXIV (June, 1966), pp. 221-237. . "The E f f e c t i v e P r o t e c t i v e Rate, the Uniform T a r i f f Equiva-l e n t , and the Average T a r i f f , " The Economic Record, XLII (June, 1966), pp. 200-216. Eastman, H. C. "Some Aspects of T a r i f f P rotection i n Canada," International Journal, XVIII (Summer, 1963), pp. 353-360. . "The Canadian T a r i f f and the E f f i c i e n c y of the Canadian Economy," American Economic Review, Papers and Proceedings, LIV (May, 1964), pp. 437-448. E l l s w o r t h , P. T. "The Structure of American Foreign Trade: A New View Examined," Review of Economics and Statistics, XXXVI (August, 1954), pp. 279-285. 81 Granick, David. "The American C a p i t a l P o s i t i o n i n Foreign Trade: A Comment," Southern Journal of Economics, XXII (October, 1955), pp. 243-248. Johnson, Harry G. "An Economic Theory of Protectionism, T a r i f f Bargain-ing, and the Formation of Customs Unions," Journal of Political Econo-my, LXXIII (June, 1965), pp. 256-283. Keesing, Donald B. "Labor S k i l l s and International Trade: Evaluating Many Trade Flows with a Single Measuring Device," Review of Economics and Statistics, XLVII (August, 1964), pp. 287-293. Kojima, Ki y o s h i . "The Pattern of International Trade Among Advanced Countries," Hitotsubashi Journal of Economics, V (June, 1964), pp. 25-36. L e i t h , J. Clark. " S u b s t i t u t i o n and Supply E l a s t i c i t i e s i n C a l c u l a t i n g the E f f e c t i v e P r o t e c t i v e Rate," Quarterly Journal of Economics, LXXXII, (November, 1968), pp. 587-601. Leon t i e f , W. W. "Domestic Production and Foreign Trade: The American C a p i t a l P o s i t i o n Re-examined," American Philosophical Society Pro-ceedings, XCVII (1953), pp. 332-349. . "Factor Proportions and the Structure of American Trade," Review of Economics and Statistics, XXXVIII (November, 1956), pp. 386-407. Matuszewski, T. I., P i t t s , P. R., and Sawyer, John A. "The Impact of Foreign Trade on Canadian Industry, 1956," Canadian Journal of Econo-mics and Political Science, XXXI (May, 1965), pp. 206-221. Robinson, R. "Factor Proportions and Comparative Advantage," Quarterly Journal of Economics, LXX (May, 1956), pp. 169-192. Stolper, W. F. and Samuelson, P. A. "Protection and Real Wages," Review of Economic Studies, IX (November, 1941), pp. 58-73. Swerling, Doris C. " C a p i t a l Shortage and Labour Surplus i n the United States?" Review of Economics and Statistics, XXXVI (August, 1954), pp. 286-289. 82 T r a v i s , William P. "The E f f e c t i v e Rate of Protection and the Question of Labour Pro t e c t i o n i n the United States," Journal of Political Economy, LXXVI (May/June, 1968), pp. 443-461. Wahl, Donald F. " C a p i t a l and Labour Requirements for Canada's Foreign Trade," Canadian Journal of Economics and Political Science, XXVII, (August, 1961), pp. 349-358. Waters, W. G. I I . "Transport Costs, T a r i f f s , and the Pattern of I n d u s t r i a l P r o t e c t i o n , " American Economic Review (forthcoming). Yadav, G. P. "A Note on the Equivalence of T a r i f f s and Quotes," Canadian Journal of Economics, I (February, 1968), pp. 105-110. . "Discriminating Aspects of Canada's Import of Manufactured Goods from the Developed and the Less Developed Countries," Discussion Paper No. 32. U n i v e r s i t y of B r i t i s h Columbia: Department of Economics, 1969. C. GOVERNMENT DOCUMENTS Dominion Bureau of S t a t i s t i c s . The Input-Output Structure of the Canadian Economy, Volume II. (DBS 15-502). Ottawa: Queen's P r i n t e r . . Manufacturing Industries of Canada Summary 1963. (DBS 31-203). Ottawa: Queen's P r i n t e r . 

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