Premium
An Empty Promise: Average Cost Savings and Scale Economies among Canadian and American Manufacturers, 1910‐1988
Author(s) -
Keay Ian
Publication year - 2003
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.2003.tb00576.x
Subject(s) - economies of scale , economics , welfare , volatility (finance) , convergence (economics) , scale (ratio) , production (economics) , goods and services , international economics , economy , macroeconomics , econometrics , microeconomics , market economy , physics , quantum mechanics
During the debate that led up to the implementation of a bilateral free‐trade agreement between Canada and the United States on January 1, 1989, much was made of economists' claims that both nations could expect significant welfare improvements as a result of the removal of tariffs on traded goods. The welfare gains were expected to flow from average cost savings associated with the exploitation of scale economies. In this article, I show that it was overly optimistic to predict substantive, permanent average cost convergence as a result of adjustments in the scale of production among Canadian or American manufacturing firms. I conclude that the formation of reasonable expectations regarding the effects of trade‐induced output adjustments should consider global‐ and local scale economies and should employ data that are not dominated by a single cycle of macroeconomic volatility.