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NAFTA and the geography of North American trade

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  • Howard J. Wall

Abstract

Debates over the desirability of a preferential trading area frequently begin with the supposition that it will have two effects on the volume of trade: It will increase trade between members of the trading area and decrease trade between members and nonmembers. This paper demonstrates, however, that at the regional level the effects of the North American Free Trade Agreement (NAFTA) might have been much more complicated than what is normally supposed. Specifically, according to gravity model estimates, NAFTA has meant (i) less trade between Eastern Canada and the United States and Mexico, (ii) more trade between Central Canada and the United States and Mexico, and (iii) more trade between Western Canada and Mexico but no change in the volume of trade between Western Canada and the United States. The model also indicates that NAFTA has decreased trade between Canadian regions and both Europe and Asia, while increasing Mexico’s trade with Asia.

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Bibliographic Info

Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2003)
Issue (Month): Mar ()
Pages: 13-26

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Handle: RePEc:fip:fedlrv:y:2003:i:mar:p:13-26:n:v.85no.2

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Keywords: North American Free Trade Agreement;

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References

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  1. Krugman, Paul, 1998. "What's New about the New Economic Geography?," Oxford Review of Economic Policy, Oxford University Press, vol. 14(2), pages 7-17, Summer.
  2. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  3. Anne O. Krueger, 1999. "Trade Creation and Trade Diversion Under NAFTA," NBER Working Papers 7429, National Bureau of Economic Research, Inc.
  4. Bayoumi, Tamim & Eichengreen, Barry, 1995. "Is Regionalism Simply a Diversion? Evidence from the Evolution of the EC and EFTA," CEPR Discussion Papers 1294, C.E.P.R. Discussion Papers.
  5. Cletus C. Coughlin & Howard J. Wall, 2002. "NAFTA and the changing pattern of state exports," Working Papers 2000-029, Federal Reserve Bank of St. Louis.
  6. Hanson, Gordon H., 1996. "Economic integration, intraindustry trade, and frontier regions," European Economic Review, Elsevier, vol. 40(3-5), pages 941-949, April.
  7. John F. Helliwell, 1996. "Do National Borders Matter for Quebec's Trade?," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 507-22, August.
  8. I-Hui Cheng & Howard J. Wall, 2005. "Controlling for heterogeneity in gravity models of trade and integration," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 49-63.
  9. Hanson, Gordon H., 1998. "Regional adjustment to trade liberalization," Regional Science and Urban Economics, Elsevier, vol. 28(4), pages 419-444, July.
  10. Laszlo Matyas, 1997. "Proper Econometric Specification of the Gravity Model," The World Economy, Wiley Blackwell, vol. 20(3), pages 363-368, 05.
  11. Michael R. Pakko & Howard J. Wall, 2001. "Reconsidering the trade-creating effects of a currency union," Review, Federal Reserve Bank of St. Louis, issue May, pages 37-46.
  12. repec:kap:jeczfn:v:82:y:2003:i:4:p:427-450 is not listed on IDEAS
  13. Karemera, David & Ojah, Kalu, 1998. "An Industrial Analysis of Trade Creation and Diversion Effects of NAFTA," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 13, pages 400-425.
  14. David M. Gould, 1998. "Has NAFTA changed North American trade?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q 1, pages 12-23.
  15. Deardorff, Alan V., 1984. "Testing trade theories and predicting trade flows," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 10, pages 467-517 Elsevier.
  16. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-81, August.
  17. Wylie, Peter J., 1995. "Partial equilibrium estimates of manufacturing trade creation and diversion due to NAFTA," The North American Journal of Economics and Finance, Elsevier, vol. 6(1), pages 65-84.
  18. Devadoss, Stephen & Kropf, Jurgen & Wahl, Thomas I., 1995. "Trade Creation And Diversion Effects Of The North American Free Trade Agreement Of U.S. Sugar Imports From Mexico," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 20(02), December.
  19. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, December.
  20. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June.
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Citations

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Cited by:
  1. Mark Funk & Erick Elder & Vincent W. Yao & Ashvin Vibhakar, 2006. "Intra-NAFTA trade and surface traffic: a very disaggregated view," Regional Economic Development, Federal Reserve Bank of St. Louis, issue Oct, pages 87-99.
  2. Martin Andresen, 2009. "The geographical effects of the NAFTA on Canadian provinces," The Annals of Regional Science, Springer, vol. 43(1), pages 251-265, March.
  3. John Romalis, 2007. "NAFTA's and CUSFTA's Impact on International Trade," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 416-435, August.
  4. Yeboah, Osei-Agyeman & Malik, Mostafa & Thompson, Henry, 2004. "Ftaa And North Carolina: Income Redistribution Across Labor Groups," 2004 Annual meeting, August 1-4, Denver, CO 20380, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  5. I-Hui Cheng & Howard J. Wall, 2004. "Controlling for heterogeneity in gravity models of trade and integration," Working Papers 1999-010, Federal Reserve Bank of St. Louis.
  6. Cardamone, Paola, 2007. "A Survey of the Assessments of the Effectiveness of Preferential Trade Agreements using Gravity Models," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 60(4), pages 421-473.
  7. Lucian Cernat, 2001. "ASSESSING REGIONAL TRADE ARRANGEMENTS: ARE SOUTH–SOUTH RTAs MORE TRADE DIVERTING?," International Trade 0109001, EconWPA.
  8. Howard J. Wall, 2002. "Has Japan been left out in the cold by regional integration?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 25-36.

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