Lorenzo Caliendo and Fernando Parro provide Estimates of the Trade and Welfare Effects of NAFTA:
In this paper we build into a Ricardian model the role of trade in intermediate inputs, sectoral linkages and differing productivity levels across sectors. The model can be used for both ex-ante and ex-post trade policy evaluation. We also propose a new method to estimate sectoral trade elasticities. Estimation requires only trade and tariff data and does not require the assumption of bilaterally symmetric trade costs. With the model and estimates of sectoral trade elasticities for the year 1993, we evaluate the trade and welfare effects of the North American Free Trade Agreement (NAFTA). We do so by incorporating into the model the change in tariffs from 1993 to 2005 to calculate the implied changes in exports and imports. We compare these calculated changes to their observed counterparts and find that the model matches the observed outcomes well. We fi nd that as a consequence of the tariff reductions, real wages increased in all NAFTA countries. Mexico had the largest gains, while Canada and the United States gained relatively more from trade liberalization against the rest of the world than from trade liberalization within NAFTA over the sample period.
A little more detail:
What were the welfare effects of NAFTA? Real wages increased in all NAFTA countries and Mexico had the largest gains. Almost 90% of the welfare gains and half of the increase in real wages for Mexico can be attributed to having access to cheaper intermediate goods. Canada and the United States gained relatively more than Mexico from liberalizing against the rest of the world.
Thanks to Jonathan Dingel (Job market papers in international trade) for the pointer.