Estimates of the Trade and Welfare Effects of NAFTA

53 Pages Posted: 25 Aug 2011

See all articles by Lorenzo Caliendo

Lorenzo Caliendo

Yale University - School of Management

Fernando Parro

Federal Reserve Board

Multiple version iconThere are 2 versions of this paper

Date Written: April 25, 2011

Abstract

We build into a Ricardian model the role of trade in intermediate inputs, sectoral linkages and differing productivity levels across sectors. We also propose a method to estimate sectoral trade elasticities. In our model, the trade effects due to overall tariff reductions account for most of the observed changes in trade flows for NAFTA members. We decompose the effects of NAFTA and find that 93% of Mexico’s, 58% of Canada’s and 55% of the United States’ trade effects can be attributed to NAFTA’s tariff reductions. Trade in intermediate inputs and input-output linkages can amplify the welfare effects of tariff reductions.

Keywords: Multi-sector, Multi-country, Ricardian model of Trade, Input-Ouput, Linkages, NAFTA

JEL Classification: F10, F13, F14

Suggested Citation

Caliendo, Lorenzo and Parro, Fernando, Estimates of the Trade and Welfare Effects of NAFTA (April 25, 2011). Available at SSRN: https://ssrn.com/abstract=1916287 or http://dx.doi.org/10.2139/ssrn.1916287

Lorenzo Caliendo (Contact Author)

Yale University - School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

HOME PAGE: http://faculty.som.yale.edu/lorenzocaliendo

Fernando Parro

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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