An Empty Promise: Average Cost Savings and Scale Economies among Canadian and American Manufacturers, 1910–1988
During the debate that led up to the implementation of a bilateral free-trade agreement between Canada and the United States on January 1, 1989, much was made of economists' claims that both nations could expect significant welfare improvements as a result of the removal of tariffs on traded goods. The welfare gains were expected to flow from average cost savings associated with the exploitation of scale economies. In this article, I show that it was overly optimistic to predict substantive, permanent average cost convergence as a result of adjustments in the scale of production among Canadian or American manufacturing firms. I conclude that the formation of reasonable expectations regarding the effects of trade-induced output adjustments should consider global- and local scale economies and should employ data that are not dominated by a single cycle of macroeconomic volatility.
Year of publication: |
2003
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Authors: | Keay, Ian |
Published in: |
Southern Economic Journal. - Southern Economic Association - SEA. - Vol. 70.2003, 2, p. 374-388
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Publisher: |
Southern Economic Association - SEA |
Saved in:
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