Trade liberalization and 'delocalization': New evidence from firm-level panel data

We examine how U.S. multinational corporations (MNCs) and their Canadian affiliates responded to the substantial bilateral tariff reductions that occurred over the 1983-92 period. Using confidential firm-level data from the Bureau of Economic Analysis, we focus on the MNCs' allocation of employment and capital across Canada and the United States. We find that Canadian affiliate employment and assets were negatively correlated with Canadian tariff rates, a pattern that contradicts the notion that Canadian tariff reductions would lead to a 'hollowing out' of Canadian manufacturing. We also find evidence of substantial heterogeneity in MNCs' responses to tariff changes, even within narrowly defined industries. JEL classification: F23, F10.