International Competition and Industrial Performance: Allocative Efficiency, Productive Efficiency, and Turbulence

Abstract

Trade exerts generally favorable effects on the performance of domestic manufacturing industries in the dimensions of allocative and productive efficiency. We review theory and recent evidence on these linkages and also explore a third effect on the turbulence of competitive conditions and the turnover of business units. Calculations using primary census records for Canada over 1973-1992 indicate, with time and industry effect, controlled, market-share turnover, entry, exit, and mergers all increase with trade exposure. The effect is tied to market structures of differentiated products but broad international disturbances (North American Free Trade Area) also have significant effects. The normative significant of turbulence is mixed but has important positive components.