Nafta's and Cusfta's Impact on International Trade

51 Pages Posted: 11 Feb 2005 Last revised: 21 Sep 2010

See all articles by John Romalis

John Romalis

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: January 2005

Abstract

This paper identifies the effects of preferential trade agreements on trade volumes and prices using detailed trade and tariff data. It identifies demand elasticities by developing a difference in differences based method that exploits the fact that the additional wedge driven between consumption patterns in a liberalizing versus a non-liberalizing country is directly related to the tariff reduction. Supply elasticities are identified by using tariffs as instruments for observed quantities. Analysis of world-wide trade data for 5,000 commodities shows that NAFTA and CUSFTA have had a substantial impact on international trade volumes, but a modest effect on prices and welfare. NAFTA and CUSFTA increased North American output and prices in many highly-protected sectors by driving out imports from non-member countries.

Suggested Citation

Romalis, John, Nafta's and Cusfta's Impact on International Trade (January 2005). NBER Working Paper No. w11059, Available at SSRN: https://ssrn.com/abstract=649203

John Romalis (Contact Author)

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