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Bigger Establishments in Thicker Markets: Can We Explain Early Productivity Differentials between Canada and the United States?

We use establishment-level data describing manufacturers located in 128 border and near-border counties in Michigan, New York, Ohio, Pennsylvania, and Ontario to calculate Canadian relative to U.S. total factor productivity ratios for 25 industries. The data have been compiled from the manuscripts for the 1870 U.S. and 1871 Canadian census of manufacturing. Our results illustrate that the average U.S. establishment was approximately 7% more efficient than its Canadian counterpart in 1870-71. When we control for establishment size and market density the U.S. productivity advantage shrinks to slightly less than 3%.