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Revisiting the effects of NAFTA

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  • Khan, Nazmus Sadat

Abstract

I use a global vector autoregression (GVAR) model with quarterly data since the inception of NAFTA (1994Q1–2016Q4) to investigate the effects of trade shocks to the USA and Mexico on major macroeconomic variables of Canada, Mexico and the USA. Structural generalized impulse response functions (SGIRF’s) are used to conduct the dynamic analysis and time varying trade weights are used to construct the foreign variables in each country model. The results show that the trade shocks have a significant positive impact in the region. A positive trade shock in the USA and Mexico increases output growth, wages, and equity prices and decreases unemployment rate in all the countries. However, inflation increases. The inclusion of China in the model dampens the positive effect of the USA and Mexican trade shock.

Suggested Citation

  • Khan, Nazmus Sadat, 2020. "Revisiting the effects of NAFTA," Economic Analysis and Policy, Elsevier, vol. 68(C), pages 1-16.
  • Handle: RePEc:eee:ecanpo:v:68:y:2020:i:c:p:1-16
    DOI: 10.1016/j.eap.2020.08.001
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    More about this item

    Keywords

    NAFTA; Spillover effects; Global vector autoregression; Trade shocks;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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