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CUSFTA effects: A joint consideration of trade and multinational activities

Listed author(s):
  • Pascal Ghazalian
  • W. Hartley Furtan

This paper estimates the effects of the Canada-US Free Trade Agreement (CUSFTA) on trade, sales of foreign affiliates of multinational enterprises, and total bilateral commerce (aggregate of both trade ands sales of foreign affiliates) in the manufacturing sector. The empirical investigation is carried out over a panel dataset covering the US bilateral transactions with the Organization for Economic Cooperation and Development (OECD) countries for the period 1983-1998. The empirical specification is guided by a gravity-based model that accounts for trade and the operation of foreign affiliates as alternative modes of accessing foreign markets. The results show that the CUSFTA induced an increase in inward and outward trade between the US and Canada, but also led to a significant reduction in sales of their foreign affiliates in the corresponding CUSFTA partner country. This outcome implies that the trade-generating effect of the CUSFTA is overstated.

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Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 18 (2009)
Issue (Month): 4 ()
Pages: 487-504

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Handle: RePEc:taf:jitecd:v:18:y:2009:i:4:p:487-504
DOI: 10.1080/09638190903217453
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