Governance, Multinationals and Growth
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Governance, Multinationals and Growth

Edited by Lorraine Eden and Wendy Dobson

In Governance, Multinationals and Growth, leading scholars celebrate and build upon the pioneering work of Edward Safarian on multinational enterprises and foreign direct investment. The book explores the linkages among multinationals and foreign direct investment, corporate and public governance, and economic growth. The contributors pay particular attention to emerging policy issues that include the behavior of individual governments, intergovernmental organizations and civil society. In addition, they address linkages among MNEs, their governance and economic growth, and generic policy realities (and innovations) in a small-to-medium-sized economy.
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Chapter 10: Responses to Trade Liberalization: Changes in Product Diversification in Foreign- and Domestic-Controlled Plants

John R. Baldwin, Richard E. Caves and Wulong Gu


10. Responses to trade liberalization: changes in product diversification in foreign- and domestic-controlled plants* John R. Baldwin, Richard E. Caves and Wulong Gu INTRODUCTION This paper studies the impact that a small country joining a regional trade agreement, but particularly a small country, might be expected to gain from the exploitation of scale economies. It makes use of the experience of Canada when it entered into the North American Free Trade Agreement (FTA) in the early 1990s. Diversification has long remained a murky area in our understanding of industrial organization generally and in particular as it affects the efficiency of open economies, which undertake extensive international trade and foreign direct investment but also subject them to government controls.1 Diversification is not routinely measured by census takers, leaving us short of both basic facts and research inputs. Economic theory offers certain predictions about where diversification will occur, but these rest on diverse assumptions and analytical bases and point to different normative verdicts. Furthermore, their implications for the small, open economy have not been pulled together. These are particularly important for Canada, hosting extensive foreign direct investment and with a long tradition of heavy protection giving way under the Canada–United States Free Trade Agreement (FTA) and subsequently the North American Free Trade Agreement (NAFTA). This paper examines diversification levels and changes in Canadian manufacturing plants, chiefly over the period stretching from the 1980s to the late 1990s, during which NAFTA was...

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