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Trade Creation And Diversion Effects Of The U.S.‐Canadian Free Trade Agreement

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  • DAVID KAREMERA
  • WON W. KOO

Abstract

This study empirically estimates and evaluates the economic benefits of the U.S. and Canadian Free Trade Agreement (FTA). Most past studies rely on aggregate data. The analysis here emphasizes the trade effects of removing tariff and nontariff barriers on each commodity group classified by the Standard International Trade Classification. Estimating the amount of trade expansion under FTA for both countries involves using the import demand elasticities from a dynamic demand model. Results show that U.S. imports from Canada are more sensitive to domestic, import, and world prices than are Canadian imports from the United States. U.S. imports from Canada would increase roughly £3.257 billion compared to the £2.432 billion increase for Canadian imports from the United States.

Suggested Citation

  • David Karemera & Won W. Koo, 1994. "Trade Creation And Diversion Effects Of The U.S.‐Canadian Free Trade Agreement," Contemporary Economic Policy, Western Economic Association International, vol. 12(1), pages 12-23, January.
    • Handle: RePEc:bla:coecpo:v:12:y:1994:i:1:p:12-23
    DOI: 10.1111/j.1465-7287.1994.tb00408.x
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    References listed on IDEAS

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    1. Won W. Koo & Ihn Ho Uhm & Joel T. Golz, 1991. "Bilateral Trade Relationship Between The United States And Canada: Implications Of The Free Trade Agreement," Contemporary Economic Policy, Western Economic Association International, vol. 9(4), pages 56-69, October.
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    6. W. Sawyer & Richard Sprinkle, 1989. "Alternative empirical estimates of trade creation and trade diversion: A comparison of the Baldwin-Murray and Verdoorn models," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 125(1), pages 61-73, March.
    7. Morris Goldstein & Mohsin S. Khan, 2017. "The Supply and Demand for Exports: A Simultaneous Approach," World Scientific Book Chapters, in: TRADE CURRENCIES AND FINANCE, chapter 2, pages 83-104, World Scientific Publishing Co. Pte. Ltd..
    8. Pomfret, Richard, 1986. "MFN Tariff Reductions and Developing Country Trade Benefits under the GSP: A Comment," Economic Journal, Royal Economic Society, vol. 96(382), pages 534-536, June.
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    Cited by:

    1. Susanto, Dwi & Rosson, C. Parr & Adcock, Flynn J., 2007. "Trade Creation and Trade Diversion in the North American Free Trade Agreement: The Case of the Agricultural Sector," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 39(1), pages 121-134, April.
    2. Skripnitchenko, Anatoliy & Beladi, Hamid & Koo, Won W., 2004. "Preferential Trade Arrangements: Impacts On Agricultural Trade And Income," Agribusiness & Applied Economics Report 23555, North Dakota State University, Department of Agribusiness and Applied Economics.
    3. Miljkovic, Dragan & Paul, Rodney, 2003. "Agricultural trade in North America: Trade creation, regionalism and regionalisation," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(3), pages 1-18, September.

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