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Economic Integration, Business Cycle, and Productivity in North America

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Author Info
M. Ayhan Kose
Roberto Cardarelli

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Abstract

This paper examines the effect of the major Canada-U.S. trade agreements on the dynamics of business cycles and productivity in Canada. The North American Free Trade Agreement (NAFTA) and its predecessor, the Canada-U.S. Free Trade Agreement (CUSFTA), have led to a substantial expansion of trade flows. Although common factors have played a larger role in explaining business cycles in Canada and the United States since the early 1980s, country-specific and idiosyncratic factors remain important for Canada. At the same time, while increased trade integration seems to have positively contributed to total factor productivity of Canadian industries, the persistence of structural differences between the two countries has prevented convergence of aggregate labor productivity. While these findings seem to weigh against moving toward a monetary union, they also suggest that substantial benefits could be reaped from further reducing remaining barriers to trade.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/138.

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Date of creation: 11 Aug 2004
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Handle: RePEc:imf:imfwpa:04/138

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Keywords: Business cycles ; Canada ; United States ; Productivity ; Trade ; International trade agreements ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kalemli-Ozcan, S. & Sorensen, B.E. & Yosha, O., 1999. "Risk Sharing and Industrial Specialization: Regional and International Evidence," Papers 16-99, Tel Aviv.
    Other versions:
  2. Brian M. Doyle & Jon Faust, 2003. "Breaks in the variability and co-movement of G-7 economic growth," International Finance Discussion Papers 786, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  3. David Hummels & Dana Rapoport & Kei-Mu Yi, 1998. "Vertical specialization and the changing nature of world trade," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 79-99. [Downloadable!]
  4. Allan Crawford, 2002. "Trends in Productivity Growth in Canada," Bank of Canada Review, Bank of Canada, vol. 2002(Spring), pages 19-32. [Downloadable!]
  5. M. Ayhan Kose & Eswar Prasad & Marco Terrones, 2003. "How Does Globalization Affect the Synchronization of Business Cycles?," IMF Working Papers 03/27, International Monetary Fund. [Downloadable!]
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  6. Jonathan Heathcote & Fabrizio Perri, 2003. "Why Has the U.S. Economy Become Less Correlated with the Rest of the World?," American Economic Review, American Economic Association, vol. 93(2), pages 63-69, May. [Downloadable!]
  7. Benoit Robidoux, 2003. "Future Productivity Growth in Canada: The Role of the Service Sector," International Productivity Monitor, Centre for the Study of Living Standards, vol. 7, pages 58-65, Fall. [Downloadable!]
  8. M. Ayhan Kose & Kei-Mu Yi, 2001. "International Trade and Business Cycles: Is Vertical Specialization the Missing Link?," American Economic Review, American Economic Association, vol. 91(2), pages 371-375, May. [Downloadable!] (restricted)
  9. Danny Leung, 2004. "The Effect of Adjustment Costs and Organizational Change on Productivity in Canada: Evidence from Aggregate Data," Working Papers 04-1, Bank of Canada. [Downloadable!]
  10. Stephen D. Oliner & Daniel E. Sichel, 2002. "Information technology and productivity: where are we now and where are we going?," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 15-44. [Downloadable!]
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  11. Carr, Jack L. & Floyd, John E., 2002. "Real and monetary shocks to the Canadian dollar: Do Canada and the United States form an optimal currency area?," The North American Journal of Economics and Finance, Elsevier, vol. 13(1), pages 21-39, May. [Downloadable!] (restricted)
  12. Lafrance, Robert & St-Amant, Pierre, 1999. "Optimal Currency Areas: A Review of the Recent Literature," Working Papers 99-16, Bank of Canada. [Downloadable!]
  13. Kimberly A. Clausing, 2001. "Trade creation and trade diversion in the Canada - United States Free Trade Agreement," Canadian Journal of Economics, Canadian Economics Association, vol. 34(3), pages 677-696, August. [Downloadable!] (restricted)
  14. Anne O. Krueger, 1999. "Trade Creation and Trade Diversion Under NAFTA," NBER Working Papers 7429, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. James H. Stock & Mark W. Watson, 2003. "Understanding Changes in International Business Cycle Dynamics," NBER Working Papers 9859, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Danny Leung, 2004. "The Effect of Adjustment Costs and Organizational Change on Productivity in Canada: Evidence from Aggregate Data," International Productivity Monitor, Centre for the Study of Living Standards, vol. 9, pages 52-61, Fall. [Downloadable!]
  17. Murray, John & Schembri, Lawrence & St-Amant, Pierre, 2003. "Revisiting the case for flexible exchange rates in North America," The North American Journal of Economics and Finance, Elsevier, vol. 14(2), pages 207-240, August. [Downloadable!] (restricted)
  18. Alexandre Debs, 2001. "Testing for a Structural Break in the Volatility of Real GDP Growth in Canada," Working Papers 01-9, Bank of Canada. [Downloadable!]
  19. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(2001-1), pages 135-174. [Downloadable!]
  20. repec:rus:hseeco:123092 is not listed on IDEAS
  21. Dr. Peter Kenning & Hilke Plassmann, 2004. "NeuroEconomics," Experimental 0412005, EconWPA. [Downloadable!]
  22. Murray, John, 2000. "Why Canada needs a flexible exchange rate," The North American Journal of Economics and Finance, Elsevier, vol. 11(1), pages 41-60, August. [Downloadable!] (restricted)
  23. Tiff Macklem, 2003. "Future Productivity Growth in Canada: Comparing to the United States," International Productivity Monitor, Centre for the Study of Living Standards, vol. 7, pages 50-57, Fall. [Downloadable!]
  24. Bayoumi, Tamim & Eichengreen, Barry, 1994. "Monetary and exchange rate arrangements for NAFTA," Journal of Development Economics, Elsevier, vol. 43(1), pages 125-165, February. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ramon A. CASTILLO PONCE & Ramon de Jesus RAMIREZ ACOSTA, 2008. "Economic Integration In North America," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 8(2), pages 111-122. [Downloadable!] (restricted)
  2. Claudio Bravo-Ortega & Julian di Giovanni, 2005. "Trade Costs and Real Exchange Rate Volatility: The Role of Ricardian Comparative Advantage," IMF Working Papers 05/5, International Monetary Fund. [Downloadable!]
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