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NAFTA's and CUSFTA's Impact on International Trade

  • John Romalis

This paper identifies the effects of preferential trade agreements on trade volumes and prices using detailed trade and tariff data. It identifies demand elasticities by developing a difference in differences based method that exploits the fact that the additional wedge driven between consumption patterns in a liberalizing versus a non-liberalizing country is directly related to the tariff reduction. Supply elasticities are identified by using tariffs as instruments for observed quantities. Analysis of world-wide trade data for 5,000 commodities shows that NAFTA and CUSFTA have had a substantial impact on international trade volumes, but a modest effect on prices and welfare. NAFTA and CUSFTA increased North American output and prices in many highly-protected sectors by driving out imports from non-member countries.

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File URL: http://www.nber.org/papers/w11059.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11059.

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Date of creation: Jan 2005
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Publication status: published as Romalis, John. "NAFTA's and CUSFTA's Impact on International Trade." Review of Economics and Statistics 89, 3 (August 2007): 416-35.
Handle: RePEc:nbr:nberwo:11059
Note: ITI
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