The Effect of a Free Trade Agreement with the United States on Member Countries’ per capita GDP: A Synthetic Control Analysis

This study employs the synthetic control method (SCM) to estimate the economic effects of signing free trade agreements (FTAs) with the United States. This method allows for a counterfactual –the country’s per capita GDP had it not signed a FTA–, which can be compared with the observed per capita GDP. This difference speaks to the causal impact of the FTA. We principally find that FTAs seem to have a heterogeneous impact. In particular, there is evidence that signing a FTA with the U.S. had a positive impact on Chile and Jordan’s per capita GDP and that NAFTA harmed Mexico’s per capita GDP. In several other cases, no significant economic impact is discernible. Besides, the more a country depends on the U.S. for its trade, the less beneficial signing a FTA with the U.S. is. This article contributes to the debate on the effectiveness of trade as a development strategy. In particular, the SCM opens up the possibility of a "case-by-case" analysis, ultimately revealing that a FTA with the U.S.–a country situated at the world’s technology frontier–has heterogeneous outcomes and, by itself, does not guarantee economic development (obtained through a higher per capita GDP).