Study: Trade and the industrial specialization of Canadian manufacturing regions

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Canada's manufacturing sector more than doubled its level of export intensity – that is, exports as a proportion of total manufacturing output – between 1974 and 1999.

However, this growing integration into the global markets through trade has not been accompanied by an increase in the industrial specialization of manufacturing economies in the various regions of the country, according to a new study. This is particularly true of the post-1990 free-trade era.

This study examines how trade has influenced the level and change in industrial specialization experienced by regional manufacturing economies during this 25-year period. It has long been thought that increased trade might lead to greater industrial specialization (the degree to which employment in particular places is concentrated in specific industries). Higher levels of industrial specialization are associated with greater vulnerability to economic shocks resulting from the loss of a key industry.

In 1974, exports accounted for only 18% of total manufacturing output. By 1999, this proportion had more than doubled to 43%.

The study found that across Canada's various regions, higher levels of export intensity were positively associated with higher levels of industrial specialization. However, subsequent increases in export intensity during the 1990s were not strongly associated with further increases in specialization.

As a result, the relationship between specialization and export intensity weakens over time. Regions that were more dependent on world markets through trade were less likely to be specialized in a small number of industries. This is related to shifts in trade intensity that see sectors heavily reliant on foreign markets becoming less so over time, and vice versa, while, at the same time, there are few associated changes in industry specialization.

Over the period studied, the regions in which the association between export intensity and specialization was highest were manufacturing regions that tend to be more closely tied to their natural resource bases. These regions tended to be rural or located in Western Canada and Atlantic Canada.

The research paper "The ebb and flow of comparative advantage: Trade and the industrial specialization of Canadian manufacturing regions, 1974 to 1999", as part of the Economic Analysis Research Paper Series (11F0027MIE2007044, free), is now available from the Publications module of our website.

More studies related to economic geography and international trade are available online (/studies-etudes/econo-eng.htm).

For more information, or to enquire about the concepts, methods or data quality of this release, contact Mark Brown (613-951-7292), Micro-economic Analysis Division.