Intranational Trade Costs, Reallocation, and Technical Change: Evidence from a Canadian Agricultural Trade Policy Reform

The 1995 removal of a railway transportation subsidy for exports of grains from Western Canada led to large aggregate changes in technology adoption and land use. We decompose the impact of the reform on seeding methods and cropping patterns to study how aggregate changes were driven by reallocation versus within-farm adaptation. Using detailed census data covering over 30,000 farms in Alberta, Saskatchewan and Manitoba, Canada we find a range of new results. We find that the reform-induced shift from producing low-value to high-value crops for export, the adoption of new seeding technologies and reduction in summerfallow observed at the aggregate level between 1991 and 2001 were driven mainly by the within-farm effect. In the longer run, however, reallocation of land from shrinking and exiting farms to growing and new farms explains more than half of the aggregate changes in technology adoption and land use between 1991 and 2011.