Essays on international trade

I study the effects of trade liberalization between Canada and the United States, focusing particularly on the gains in productivity generated by tariff reductions. The existing literature has yet to find answers to: (i) why do trade volumes react so heavily to changes in tariffs? and (ii) why does productivity increase when tariffs fall? The first chapter poses the questions. The second chapter proposes an answer.;In the first chapter, I document the behavior of trade volumes and productivity during two trade liberalization episodes between Canada and the United States: the 1965 Auto Pact and the 1989 Free Trade Agreement. I find evidence that the productivity in the sector most affected by the tariff reductions increased faster in Canada than in the United States following these agreements. I then discuss that a standard model fails in two key dimensions: it cannot generate an increase in trade volumes as large as that observed empirically; and it cannot generate productivity gains.;The second chapter studies the implications of endogenous productivity choices ("innovation") on the effects of trade liberalization. I find that a model with innovation generates an elasticity of trade volumes to tariff reductions consistent in magnitude to empirical estimates. In addition, the model generates productivity gains from trade when productivity is measured as in the national accounts. To show this, I develop a new model of international trade with innovation, and calibrate it to data on Canada and the United States before the Free Trade Agreement. Feeding into the calibrated model the tariff drop that resulted from the agreement, the increase in the trade volumes is similar to that observed in the data.