Adapting to Import Competition: Effects of Low-wage Trade on Commodity Mix in Canadian Manufacturing Plants

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by John R. Baldwin and Alla Lileeva

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The paper investigates how Canadian manufacturing plants adjust to an increase in low-wage import competition by changing their commodity portfolios. At the commodity level, we distinguish between 'core' versus 'peripheral' and differentiated versus homogeneous commodities. We also account for cost and technological complementarities using input-output linkages between commodities produced by a plant. We document large commodity turnover within plants over the period from 1988 to 1996. The largest changes happened in multi-commodity plants and involved peripheral commodities. The commodities that were affected the most were those commodities that are potentially used as inputs in production of the 'core' commodity; homogeneous (rather than differentiated) commodities; and, commodities with relatively weak input complementarities with the core product. Plants experiencing large import competition shifted their output toward production of their core commodity and away from production of unrelated peripheral commodities.

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