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UBC Theses and Dissertations

Sizing up the tariff : an econometric inquiry into the effect of Kennedy round tariff concessions on productivity in the Canadian manufacturing sector Pipe, Roger Daviss


Evidence suggests that productivity in the Canadian manufacturing sector has been consistently lower than in the United States. During the past two decades, a concensus has arisen among mainstream Canadian economists that the tariff, in conjunction with other forces, is largely responsible for these interindustry productivity differences and, by corollary, that tariff reductions would lead to improved performance in Canadian manufacturing. However, despite numerous econometric studies, no statistical evidence has ever been found to conclusively support this view. This thesis builds upon these earlier studies to construct a model of inter-industry relative productivity change in the Canadian manufacturing sector for the years 1970 to 1979. This was the period following the substantial tariff concessions made during the 1965 Kennedy Round of tariff negotiations of the signatories of General Agreement on "Trade and Tariffs, and thus provided an ideal time period in which to analyze the effect of tariff reductions on industrial structure and performance. The study makes two important contributions: first, newly collected trade data on the tariff items and commodities affected by the Kennedy Round enabled the construction of variables to measure the impact of the Kennedy Round reductions on individual industries, permitting the construction of a more finely-tuned model than was previously possible. Second, the thesis goes beyond the static models developed in earlier studies by creating a dynamic model of inter-industry relative productivity change. One of the main findings was that industries that were significantly affected by the Kennedy Round tariff concessions showed a tendency to be less productive than unaffected industries, suggesting that concessions were made in uncompetitive industries, either because they faced little competition from foreign markets or because of a political decision to reduce tariff support to chronically uncompetitive manufacturers. Furthermore, productivity growth was found to be negatively correlated to the breadth of tariff concession made in an industry, suggesting that other, non-tariff, forms of protection may have protected highly affected industries in the ensuing years. The other finding concerned the role of the tariff in productivity change. No evidence was found to support the view that large productivity gains could be expected from a reduction in the tariff. For highly concentrated industries, a one percent decrease in the tariff was estimated to result in a productivity increase on the order of 0.013% for the period 1970 to 1979.

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