Drop shadows and be added when you have one layer on top of another and the data on the upper layer is smaller than the lower layer. If it were bigger or same size then no shadow could fall on the lower layer.

So let me sorta re-trace what you did and what should be done and see if you can figure out where you went wrong, if at all.

Start with one layer, Background. Duplicate this layer. Increase canvas size but however much you want. Now. With the top layer active (no need to select anything in the image, in fact do not) use the drop shadow effect. In the drop shadow dialog adjust to your liking, angle, size, diffusion, etc. You should see the shadow of the upper layer fall onto the lower layer... unless when you added canvas size it added a solid white to all the edges of all the layers. The additional edges added to the upper layer should be transparent. Not sure what controls the added area to the borders but something makes it use either background color or transparent.

To test this turn off the Background layer and see if the upper layer is surrounded by the transparent indicator of checkerboard. If the border is NOT transparent make it that way by selecting and deleting this added area and try to do drop shadow again.

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PhotosReViewer is a free and useful digital photo editor utility.

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