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An econometric analysis of trade diversion under NAFTA

Author

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  • Fukao, Kyoji
  • Okubo, Toshihiro
  • Stern, Robert M.

Abstract

We provide an econometric analysis of whether or not the tariff preferences extended to Canada and Mexico under NAFTA may have resulted in trade diversion. A review of previous studies, both descriptive and econometric, suggests that trade diversion has occurred especially as evidenced by Mexico's increased shares of U.S. imports apparently at the expense of several Asian countries. We use a conceptual framework based on a partial-equilibrium model of differentiated product industries under monopolistic competition for many countries. The model is implemented empirically using a fixed-effect panel analysis of U.S. imports at the Harmonized System (HS) 2-digit level for the period, 1992-98. Of the 70 sets of regressions that were run, the coefficients of the tariff rates were statistically significant in 15 cases. The strongest evidence of trade diversion was found mainly for U.S. imports of textile and apparel products. We also estimated regressions for selected commodities at the HS 4-digit level. The results suggest trade diversion for textiles, apparel, and some footwear products but not for trade in motor cars and vehicles and television receivers, which may have been more influenced by changes in foreign direct investment and outsourcing rather than tariff preferences.
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  • Fukao, Kyoji & Okubo, Toshihiro & Stern, Robert M., 2003. "An econometric analysis of trade diversion under NAFTA," The North American Journal of Economics and Finance, Elsevier, vol. 14(1), pages 3-24, March.
  • Handle: RePEc:eee:ecofin:v:14:y:2003:i:1:p:3-24
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    Cited by:

    1. de Sousa, José & Mayer, Thierry & Zignago, Soledad, 2012. "Market access in global and regional trade," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 1037-1052.
    2. repec:bla:kyklos:v:70:y:2017:i:2:p:278-305 is not listed on IDEAS
    3. Jim Stanford, 2011. "The North American Free Trade Agreement: Context, Structure and Performance," Chapters,in: The Handbook of Globalisation, Second Edition, chapter 16 Edward Elgar Publishing.
    4. 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.
    5. Lionel Fontagne & Soledad Zignago, 2007. "A Re-evaluation of the Impact of Regional Agreements on Trade Patterns," Economie Internationale, CEPII research center, issue 109, pages 31-51.
    6. Sargent, John & Matthews, Linda, 2009. "China versus Mexico in the Global EPZ Industry: Maquiladoras, FDI Quality, and Plant Mortality," World Development, Elsevier, vol. 37(6), pages 1069-1082, June.
    7. Claudio E.Montenegro & Isidro Soloaga, 2006. "Nafta´s trade efects: new evidence with a gravity model," Estudios de Economia, University of Chile, Department of Economics, vol. 33(1 Year 20), pages 45-63, June.
    8. Richard A. McGowan & John F. Mahon, 2007. "U.S. Beer Flows & the Impact of NAFTA," Management and Marketing Journal, University of Craiova, Faculty of Economics and Business Administration, vol. 5(1), pages 39-54, November.
    9. Shushanik Hakobyan & John McLaren, 2016. "Looking for Local Labor Market Effects of NAFTA," The Review of Economics and Statistics, MIT Press, vol. 98(4), pages 728-741, October.
    10. Jugurnath, Bhavish & Stewart, Mark & Brooks, Robert, 2007. "Asia/Pacific Regional Trade Agreements: An empirical study," Journal of Asian Economics, Elsevier, vol. 18(6), pages 974-987, December.
    11. Ingo Borchert, 2009. "Trade diversion under selective preferential market access," Canadian Journal of Economics, Canadian Economics Association, vol. 42(4), pages 1390-1410, November.
    12. 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 Industria Artigianato Agricoltura di Genova, vol. 60(4), pages 421-473.
    13. Joseph, Siny & Lavoie, Nathalie, 2008. "Effectiveness of COOL in the U.S. Seafood Industry," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6260, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    14. Aghion, Edouard, 2011. "NAFTA and its Impact on Mexico," MPRA Paper 36529, University Library of Munich, Germany.
    15. Gauto, Victor F., 2012. "An Econometric Analysis of Trade Creation and Trade Diversion in Mercosur: the Case of Paraguay," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126864, International Association of Agricultural Economists.
    16. Mustafizur Rahman & Wasel Bin Shadat & Narayan Chandra Das, 2006. "Trade Potential in SAFTA - An Application of Augmented Gravity Model," Trade Working Papers 22296, East Asian Bureau of Economic Research.
    17. URATA Shujiro & OKABE Misa, 2007. "The Impacts of Free Trade Agreements on Trade Flows: An Application of the Gravity Model Approach," Discussion papers 07052, Research Institute of Economy, Trade and Industry (RIETI).
    18. Susanto, Dwi & Rosson, C. Parr, III & Adcock, Flynn J., 2006. "Trade Creation and Trade Diversion in the North American Free Trade Agreement: The Case of Agricultural Sector," 2006 Annual meeting, July 23-26, Long Beach, CA 21357, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    19. Yoko Oguro, 2007. "The Influence of Intra-Industry Trade on Export Sensitivity to Exchange Rates," Hi-Stat Discussion Paper Series d07-222, Institute of Economic Research, Hitotsubashi University.
    20. Murray G Smith, 2011. "The North American Free Trade Agreement: Fait Accompli?," Chapters,in: International Handbook on the Economics of Integration, Volume I, chapter 15 Edward Elgar Publishing.
    21. Bahmani-Oskooee, Mohsen & Bolhassani, Marzieh & Hegerty, Scott W., 2011. "Industry trade between Canada and Mexico: Will a weakening peso help Mexican manufacturing in the long run?," The North American Journal of Economics and Finance, Elsevier, vol. 22(2), pages 89-101, August.
    22. Carlo Piccardi & Lucia Tajoli, 2015. "Are Preferential Agreements Significant for the World Trade Structure? A Network Community Analysis," Kyklos, Wiley Blackwell, vol. 68(2), pages 220-239, May.
    23. Ayhan Kose & Christopher M Towe & Guy M Meredith, 2004. "How Has Nafta Affected the Mexican Economy? Review and Evidence," IMF Working Papers 04/59, International Monetary Fund.

    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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