Trade Liberalisation and Plant Exit in New Zealand Manufacturing

Data on New Zealand manufacturing plants are used to examine the impact of trade liberalisation on plant exit. Recent theories suggest that the prospect of a declining market might cause firms to adopt strategic behavior that causes low cost plants to exit first. This hypothesis is generally unsupported. Surviving plants were larger, lower cost, and were owned by specialised firms with few plants. Plant costs were more important than firm size for explaining the plant-closing behaviour of single-plant firms. Diversified, multi-plant firms were more likely to close plants and were influenced by plant size but not plant costs.