TORONTO, Sept. 19 (AScribe Newswire) -- A recent study on Canada's free trade experience suggests that eliminating more trade barriers inside and outside Canada could lead to big leaps in Canadian productivity, which in turn would allow Canada to better fund its social programs.
The study by economics researchers Daniel Trefler and Alla Lileeva, found that Canadian companies with low productivity levels before the Canada-U.S. Free Trade Agreement (FTA) made significant productivity gains once the FTA came into effect in 1989.
The gains were made because the elimination of trade barriers created the right conditions for these companies to make major investments in productivity, such as becoming more innovative with products, and investment in manufacturing technology, especially sophisticated computer technology coordinating tasks such as production and inventory control. Low productivity companies that began to export after FTA adopted new technology at more than two times the rate of their non-exporting counterparts. Besides improving these companies' productivity, the investments also improved their sales performance in the Canadian market, as much as 20 percent over eight years.
The study "tells us that inter-provincial trade barriers should be eliminated as much as possible at home to the make the Canadian market as accessible as it can be," says Prof. Trefler, who holds the J. Douglas and Ruth Grant Canada Research Chair in Competitiveness and Prosperity at the Rotman School of Management at the University of Toronto. Policy-makers should also look at eliminating technical trade barriers that still exist between Canada and the U.S.
Large companies that had already made major investments in productivity did not see the same productivity growth as smaller ones. But Prof. Trefler cautions that it is the development of smaller companies, looking for their "break-out" opportunity, which is a major indicator of how dynamic an economy is.
Rising productivity leads to increased economic prosperity and thus higher tax revenues that are available to deal with the major problems confronting society, such as how to pay for the increased demands of an aging population on Canada's health care system.
"Canada has a 20 percent productivity gap vis-à-vis the U.S," said Prof. Trefler. "If we could put the gap back to where it was in 1980 when it was much lower... in Canada we would generate $68 billion more in tax revenue. Think of what that would mean."
The complete study is available at: www.rotman.utoronto.ca/pdf/Trefler1.pdf.
The University of Toronto's Joseph L. Rotman School of Management has set out to become one of the world's top tier business schools. Located in North America's 3rd largest financial centre, the Rotman School is taking an innovative approach to management education, built around Integrative Thinking(tm) and Business Design(tm). For more information and to find out why the Financial Times and BusinessWeek rank Rotman among the leading business schools internationally, visit www.rotman.utoronto.ca.
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For more information:
Ken McGuffin
Manager, Media Relations
Rotman School of Management
University of Toronto
Voice: 416-946-3818
E-mail: mcguffin@rotman.utoronto.ca
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Media Contact: See above.
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