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Regional Integration And North-South Technology Diffusion: The Case of Nafta

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  • Maurice Schiff
  • Yanling Wang

Abstract

The literature on regional integration agreements (RIAs) is vast and deals with political, economic and political economy issues. The literature on the economics of RIAs deals mostly with static effects, and concludes that these effects are in general ambiguous. So far, there has been no empirical analysis of the dynamic effects of RIAs based on their impact on technology diffusion from partner and non-partner countries. This paper is a first attempt in this direction. It examines the impact of NAFTA on total factor productivity (TFP) in Mexico through its impact on trade-related technology transfers from OECD countries. Trade-related technology diffusion is estimated with the use of a measure of trade-related foreign R&D. Foreign R&D is constructed based on industry-specific R&D in the OECD, OECD-Mexico trade patterns, and input-output relations in Mexico. We separate the OECD into two parts, Mexico’s NAFTA partners (US + Canada) and the rest of the OECD. We find, first, that Mexico’s trade with its NAFTA partners has a large and significant impact on Mexico’s TFP while trade with the rest of the OECD does not. This is likely to be due to the fact that Mexico not only benefits from the R&D content of the trade with its Northern neighbors but also benefits from direct contact and close exchanges of information, especially for sub-contracting firms which are more closely integrated in the US and Canada production networks than with the production networks of the more distant countries of the rest of the OECD. Second, we simulate the impact of NAFTA and find that it has led to a permanent increase in TFP in Mexico’s manufacturing sector of between 5.5%and 7.5% and to some convergence to the economies of the US and Canada.

Suggested Citation

  • Maurice Schiff & Yanling Wang, 2004. "Regional Integration And North-South Technology Diffusion: The Case of Nafta," Working Papers Central Bank of Chile 283, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:283
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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. Keller, Wolfgang, 1998. "Are international R&D spillovers trade-related?: Analyzing spillovers among randomly matched trade partners," European Economic Review, Elsevier, vol. 42(8), pages 1469-1481, September.
    3. Arvind Panagariya & Jagdish Bhagwati, 1996. "The Economics of Preferential Trade Agreements," Books, American Enterprise Institute, number 51856.
    4. Maurice Schiff & L. Alan Winters, 2003. "Regional Integration and Development," World Bank Publications, The World Bank, number 15172.
    5. Linda Hunter & James R. Markusen & Thomas F. Rutherford, 1992. "US-Mexico Free Trade and the North American Auto Industry: Effects on the Spatial Organisation of Production of Finished Autos," The World Economy, Wiley Blackwell, vol. 15(1), pages 65-82, January.
    6. repec:fth:michin:289 is not listed on IDEAS
    7. Dan Ben-David, 1993. "Equalizing Exchange: Trade Liberalization and Income Convergence," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 653-679.
    8. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. Gourdon, Julien, 2007. "Trade and Wage Inequality in Developing Countries: South-South Trade Matters," MPRA Paper 4177, University Library of Munich, Germany.
    2. 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.

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