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An Industrial Analysis of Trade Creation and Diversion Effects of NAFTA

Author

Listed:
  • Karemera, David

    (South Carolina State University)

  • Ojah, Kalu

    (Saint Louis University)

Abstract

Welfare effects of economic integration are often studied with aggregate data, and as such provide limited insights about the effects of trade pacts to individual economic agents in the free trade area. In this study a three-digit disaggregated commodity/ industry data grouped under the Standard International Trade Classification is used to empirically assess the economic benefits of the North American Free Trade Agreement (NAFTA). Import demand elasticities from a dynamic demand model were used to estimate both trade creation and trade diversion effects of removing all tariff barriers from among NAFTA countries – US, Canada and Mexico. Results show that US imports of crude oil and petrole - um products from Canada and most US imports from Mexico are more sensi - tive to domestic prices than to bilateral import prices. Further, results indicate that US will benefit the most from the initial trade effects of NAFTA, while Mex - ico will benefit the least. Specifically, US exporters of automatic data processing equipment, and pulp and waste paper products will benefit the most from increased trade with NAFTA countries. Mexican exporters of crude oil, and veg - etables and fresh produce; and Canadian exporters of paper and paperboard products will be the most beneficiaries of NAFTA among exporters in these respective countries.

Suggested Citation

  • Karemera, David & Ojah, Kalu, 1998. "An Industrial Analysis of Trade Creation and Diversion Effects of NAFTA," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 13, pages 400-425.
    • Handle: RePEc:ris:integr:0080
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    Citations

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    Cited by:

    1. Naoto JINJI & Kazunobu HAYAKAWA & Nuttawut LAKSANAPANYAKUL & Toshiyuki MATSUURA & Taiyo YOSHIMI, 2020. "A New Approach for Quantifying the Costs of Utilizing Regional Trade Agreements," Discussion papers e-19-010, Graduate School of Economics , Kyoto University.
    2. Hyeryeon Jung & Yoon Heo, 2005. "NAFTA and Flow of FDI into Mexico: Investment Diversion or Stock Adjustment?," International Area Studies Review, Center for International Area Studies, Hankuk University of Foreign Studies, vol. 8(2), pages 71-91, June.
    3. Fukao, Kyoji & Okubo, Toshihiro & Stern, Robert M., 2003. "An econometric analysis of trade diversion under NAFTA," The North American Journal of Economics and Finance, Elsevier, vol. 14(1), pages 3-24, March.
    4. HAYAKAWA Kazunobu & JINJI Naoto & MATSUURA Toshiyuki & YOSHIMI Taiyo, 2019. "Costs of Utilizing Regional Trade Agreements," Discussion papers 19054, Research Institute of Economy, Trade and Industry (RIETI).
    5. Magee, Christopher S.P., 2008. "New measures of trade creation and trade diversion," Journal of International Economics, Elsevier, vol. 75(2), pages 349-362, July.
    6. Toshiyuki Matsuura & Kazunobu Hayakawa & Nuttawut LAKSANAPANYAKUL & Yuta Watabe, 2014. "Price and Quality Changes in Outsiders of Regional Trade Agreements," Working Papers e084, Tokyo Center for Economic Research.
    7. Howard J. Wall, 2003. "NAFTA and the geography of North American trade," Review, Federal Reserve Bank of St. Louis, vol. 85(Mar), pages 13-26.
    8. Kyoji Fukao & Toshihiro Okubo, 2004. "Why Has the Border Effect in the Japanese Market Declined?: The Role of Business Networks in East Asia," Hi-Stat Discussion Paper Series d03-24, Institute of Economic Research, Hitotsubashi University.
    9. Mary E. Burfisher & Sherman Robinson & Karen Thierfelder, 2001. "The Impact of NAFTA on the United States," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 125-144, Winter.
    10. Hayakawa, Kazunobu & Kimura, Fukunari & Laksanapanyakul, Nuttawut, 2016. "Firm-level trade creation and diversion of regional trade agreements in Thailand," IDE Discussion Papers 621, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    11. Christopher S.P. Magee, 2017. "The Increasing Irrelevance of Trade Diversion," Kyklos, Wiley Blackwell, vol. 70(2), pages 278-305, May.

    More about this item

    Keywords

    Industrial Analysis; Trade Creation;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F20 - International Economics - - International Factor Movements and International Business - - - General

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