Trade Variety and Productivity in Canada

Abstract:

Imports from countries like China make Canadian industry more competitive. This is a conclusion of this paper which examines the effects of both import and export growth on technological development. Using data covering all Canadian provinces, as well as the whole nation, from 1988 to 2006, it estimates that Canadian productivity growth is positively and significantly affected by both export variety and import variety. The export variety and import variety respectively account for 10.41% and 1.57% of the variation in Canadian provincial productivity differences.  Furthermore, the export and import variety respectively account for 9.92% and 6.95% of provincial productivity growth, and their total effects can account for 17.31%. A 10% increase in all trade varieties leads to a 0.90% increase in Canadian productivity, in which the export variety’s contribution is 0.57% and the import variety’s is 0.33%. Though the US is the single most important source boosting Canadian productivity growth by buying more Canadian varieties, its relative importance is much less in imports. Emerging and other new developing economies such as China benefit Canada by providing more varieties to Canadian producers.