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The global macroeconomics of NAFTA

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  • Joyce Manchester
  • Warwick Mckibbin

Abstract

Previous empirical studies of NAFTA have commonly used trade models that do not allow international capital flows to adjust to changes in regional trade arrangements such as NAFTA. This paper explores the dynamic implications of NAFTA with particular focus on the short-run and longer-run adjustment of financial capital. This adjustment affects the global allocation of physical capital and therefore changes the growth prospects for a country such as Mexico. Our results suggest that Mexico and the world economy gain more from NAFTA than merely a static reallocation of production possibilities. In the short run, the adjustment of financial capital affects nominal and real exchange rates. This adjustment is far more important for the short-term allocation of trade flows than partial equilibrium adjustment of trade based only on changes in long-term price differentials. Copyright Kluwer Academic Publishers 1995

Suggested Citation

  • Joyce Manchester & Warwick Mckibbin, 1995. "The global macroeconomics of NAFTA," Open Economies Review, Springer, vol. 6(3), pages 203-223, July.
  • Handle: RePEc:kap:openec:v:6:y:1995:i:3:p:203-223
    DOI: 10.1007/BF01000081
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Gary Clyde Hufbauer & Jeffrey J. Schott, 1992. "North American Free Trade: Issues and Recommendations," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 71, January.
    3. Stern, R.M. & Deardorff, A.V. & Brown, D.K., 1992. "A US-Mexico-Canada Free Trade Agreement: Sectoral Employment Effects and Regional/Occupational Employment Realignments in the United States," Working Papers 315, Research Seminar in International Economics, University of Michigan.
    4. Campbell, John Y & Mankiw, N Gregory, 1990. "Permanent Income, Current Income, and Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 265-279, July.
    5. Baldwin, Richard E, 1992. "Measurable Dynamic Gains from Trade," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 162-174, February.
    6. Haque, Nadeem U & Montiel, Peter, 1989. "Consumption in Developing Countries: Tests for Liquidity Constraintsand Finite Horizons," The Review of Economics and Statistics, MIT Press, vol. 71(3), pages 408-415, August.
    7. Gerard Adams, F. & Alanis, Mario & del Rio, Abel Beltran, 1992. "The Mexico-United States free trade and investment area proposal: A macroeconometric evaluation of impacts on Mexico," Journal of Policy Modeling, Elsevier, vol. 14(1), pages 99-119, February.
    8. McKibbin, W.J. & Wilcoxen, J.P., 1992. "G-Cubec: A Dynamic Multi-Sector General Equilibrium Model of the Global economy (Quantifying the Cost of Curbing CO2 Emissions)," Papers 98, Brookings Institution - Working Papers.
    9. Robinson, Sherman & Burfisher, Mary E. & Hinojosa-Ojeda, Raul & Thierfelder, Karen E., 1993. "Agricultural policies and migration in a U.S.-Mexico free trade area: A computable general equilibrium analysis," Journal of Policy Modeling, Elsevier, vol. 15(5-6), pages 673-701.
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    Cited by:

    1. Robinson, Sherman & Thierfelder, Karen, 2002. "Trade liberalisation and regional integration: the search for large numbers," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 46(4), December.
    2. Fernandez-Arias, Eduardo & Spiegel, Mark M., 1998. "North-South customs unions and international capital mobility," Journal of International Economics, Elsevier, vol. 46(2), pages 229-251, December.
    3. Mary E. Burfisher & Sherman Robinson & Karen Thierfelder, 2001. "The Impact of NAFTA on the United States," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 125-144, Winter.
    4. repec:kap:openec:v:29:y:2018:i:1:d:10.1007_s11079-017-9472-x is not listed on IDEAS
    5. Kouparitsas, Michael A., 2001. "Should trade barriers be phased-out slowly? A case study of North America," Journal of Policy Modeling, Elsevier, vol. 23(8), pages 875-900, November.
    6. Warwick Mckibbin & Dominick Salvatore, 1995. "The global economic consequences of the Uruguay Round," Open Economies Review, Springer, vol. 6(2), pages 111-129, April.
    7. Warwick. J. McKibbin, "undated". "Quantifying APEC Trade Liberalization: A Dynamic Analysis," Discussion Papers 122, Brookings Institution International Economics.
    8. Eduardo Fernández-Arias & Mark M. Spiegel, 1997. "Uniones aduaneras norte-sur y movilidad internacional del capital," Research Department Publications 4061, Inter-American Development Bank, Research Department.
    9. 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.
    10. McKibbin, Warwick J. & Wilcoxen, Peter J., 2013. "A Global Approach to Energy and the Environment," Handbook of Computable General Equilibrium Modeling, Elsevier.
    11. Devarajan, Shantayanan & Robinson, Sherman, 2002. "The influence of computable general equilibrium models on policy," TMD discussion papers 98, International Food Policy Research Institute (IFPRI).
    12. Michael A. Kouparitsas, 1998. "Dynamic trade liberalization analysis: steady state, transitional and inter-industry effects," Working Paper Series WP-98-15, Federal Reserve Bank of Chicago.

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    Keywords

    NAFTA; financial capital flows;

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