Economic integration and the diversification of regional exports: evidence from the Canadian-U.S. Free Trade Agreement

We investigate the impact of Canada–U.S. trade integrationon the degree of export diversification of the Canadian regions.Trade integration is captured through the decrease of trade-weightedtariffs that were boosted by implementation of the Canadian–U.S.Free Trade Agreement. We found strong evidence to support integration'slong-run impact on the patterns of absolute exports diversification.Significantly, this new finding remains robust to the exclusionof the primary sectors and to the potential presence of unitroot in the data. Our results lead us to support a positivelong-run relationship between trade integration and export diversification.