Productivity Performance and International Competitiveness: A New Test of an Old Theory

The paper uses a modern adaptation of the Ricardian model which incorporates monopolistic competition and multiple factors to derive a MacDougall-type relation between a country’s nternational competitiveness at the industry level and its productivity performance. This relation is implemented empirically for Canada and the United States, using panel data for 25 years and 40 industries. A key finding is that Canadian-U.S. productivity ratio is a significant determinant of relative shares of Canadian firms in both Canadian and U.S. markets. Trade liberalization between Canada and the U.S. also plays an important role in influencing market shares.