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NAFTA and the Realignment of Textile and Apparel Trade: Trade Creation or Trade Diversion?

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  • Anusua Datta
  • Mikhail Kouliavtsev

Abstract

A modified version of the partial‐equilibrium gravity model, originally proposed by Fukao et al. (2003), is employed to investigate the changing pattern of US textile trade. We use US Bilateral Manufacturing Imports and Exports data for 1989–2001 to assess the impact of labor wages, tariffs, and exchange rates on the composition of US textile imports before and after the creation of NAFTA. The analysis is performed at the SIC two‐digit industry level and the more disaggregated four‐digit sector level. We find little evidence of trade diversion in textiles frequently attributed to NAFTA, while trade creation is clearly present. Furthermore, lower wages in some textile‐exporting countries (e.g. countries in Asia) do not appear to significantly increase these countries' shares of US textile imports at the expense of other trading partners. However, variations in currency exchange rates and tariffs have substantial effects on the composition of US imports.

Suggested Citation

  • Anusua Datta & Mikhail Kouliavtsev, 2009. "NAFTA and the Realignment of Textile and Apparel Trade: Trade Creation or Trade Diversion?," Review of International Economics, Wiley Blackwell, vol. 17(1), pages 172-186, February.
    • Handle: RePEc:bla:reviec:v:17:y:2009:i:1:p:172-186
    DOI: 10.1111/j.1467-9396.2008.00783.x
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    References listed on IDEAS

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    1. Gary Clyde Hufbauer & Jeffrey J. Schott, 1992. "North American Free Trade: Issues and Recommendations," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 71, January.
    2. Kimberly A. Clausing, 2001. "Trade creation and trade diversion in the Canada - United States Free Trade Agreement," Canadian Journal of Economics, Canadian Economics Association, vol. 34(3), pages 677-696, August.
    3. Agama, Laurie-Ann & McDaniel, Christine A., 2002. "The NAFTA Preference and U.S.-Mexico Trade," Working Papers 15873, United States International Trade Commission, Office of Economics.
    4. Anne O. Krueger, 1999. "Trade Creation and Trade Diversion Under NAFTA," NBER Working Papers 7429, National Bureau of Economic Research, Inc.
    5. Robert C. Feenstra & John Romalis & Peter K. Schott, 2002. "U.S. Imports, Exports, and Tariff Data, 1989-2001," NBER Working Papers 9387, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Yoon Heo & Nguyen Khanh Doanh, 2020. "Is NAFTA Trade‐Creating or Trade‐Diverting? A System GMM Approach," Economic Papers, The Economic Society of Australia, vol. 39(3), pages 222-238, September.
    2. Mirajul Haq & Javeria Saeed & Muhammad Akram, 2021. "Exploring the Advantages and Disadvantages of the China–Pakistan Free Trade Agreement," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 29(3), pages 83-103, May.

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