An Oil-Producing State's Ability to Cope after a Regional Free Trade Agreement: The Case of Texas and NAFTA
The International Trade Journal, 29(4): 309-336, 2015
32 Pages Posted: 1 Feb 2014 Last revised: 31 Aug 2015
Date Written: July 27, 2015
This article examines the potential economic effects that the 1994 North American Free Trade Agreement (NAFTA) had on Texas — an oil producing, large border state. We estimate a five-variable vector autoregressive (VAR) model with quarterly data from January 1976 to March 2011 and construct a structural VAR representation by imposing long-run restrictions to identify U.S. aggregate, oil price, and Texas-specific shocks. After comparing responses to these structural shocks before and after NAFTA, our results suggest that NAFTA contributed to Texas’ economy, becoming more resilient to oil price and non-Texas disruptions.
Keywords: Structural VAR, Oil Price Shocks, NAFTA, Texas
JEL Classification: C32, Q43, R10
Suggested Citation: Suggested Citation