Essays in international trade and foreign direct investment

In Chapter 1, using data on manufacturing plants operating in Canada during the period 1981--1997, we estimate the effects of changes in foreign direct investment on labour productivity in Canadian-owned plants. We distinguish between FDI in own industry of domestic plants and FDI in industries linked by supply and use of intermediate inputs. We find that FDI increases productivity growth in Canadian plants in a way, which is consistent with technology transfer from foreign suppliers to domestic plants. Positive productivity effects of FDI are more pronounced for plants who outsource more intermediates, and who purchase science-based intermediate inputs (i.e. electronics, machinery and equipment, and chemicals). The paper also finds that foreign competition has a negative effect on productivity of domestic producers.; Chapter 2 examines the effects of the Canada-U.S. FTA upon the productivity of Canadian plants. It finds that all of the positive productivity effects resulting from the FTA-mandated tariff cuts are captured by exporters. In particular, the paper documents how tariff cuts have resulted in the growth of exporters' shipments, export participation rates, and increase in productivity of exporters. We causally link the increase in exporting to productivity growth in exporting plants. Consequently, the paper resolves several puzzles raised in previous research, by demonstrating that any lack of output response as a consequence of the FTA, and labour-shedding, were experienced by Canadian plants who were non-exporters---while exporters did capture gains from the FTA.; Chapter 3 evaluates the importance of trade-induced plant turnover ('between' hypothesis) and productivity growth of individual plants ('within' hypothesis) for changes in productivity distribution of plants and for aggregate productivity growth in Canada. It finds that Canadian tariff cuts increased exit rates of plants. This led to reallocation of market share toward highly productive plants, which in turn explains aggregate productivity gains that were observed with the reduction of Canadian tariffs. Overall I find that both Canadian and the U.S. tariff cuts induce market share reallocation, with Canadian tariff effect being more pronounced. The U.S. tariff reductions also increased exporters' survival probabilities and induced transition of exporting plants up in the productivity distribution.