The Benefits of NAFTA

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.

Comments

[guanacaste costa rica real estate]

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.

[Forex Trading]

It is amazing how such simple decisions can effect whole countries- I mean SIMPLE as in logical, calculated and so on... I think that the more Mexico benefits, so ti would be easier fro the US to maintain good relations with this country.

[donna]

Thanks for such an informative article, it's been very useful.

[new era magasin]

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

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[jewish tradition]

The goal of NAFTA was to eliminate barriers of trade and investment between the US, Canada and Mexico. The implementation of NAFTA on January 1, 1994, brought the immediate elimination of tariffs on more than one half of U.S. imports from Mexico and more than one third of U.S. exports to Mexico.

[Liposuction Indiana]

Every decision a government or its officials will do, always has two effects. May it be good or bad, it was agreed by two parties.

[wrapping machine]

I think that NAFTA is not such a good thing as you describe it. i mean after all this agreement does hurt our sovereignty.