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Modeling the dynamic impact of North American free trade

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  • Timothy J. Kehoe

Abstract

The current tool of choice for analyzing the impact of a potential North American Free Trade Agreement on the economies of Canada, Mexico, and the United States is the static applied general equilibrium model. Although this type of model can do a good job in analyzing, and even in predicting, the impact of trade liberalization or tax reform on relative prices and resource allocation over a short time horizon, it does not attempt to capture the impact of government policy on growth rates. For this we need a dynamic model. This paper outlines some of the issues that confront a researcher interested in building a dynamic general equilibrium model to assess the potential economic impact of a NAFTA, including the impact on growth rates. Simple calculations based on preliminary empirical work indicate that the dynamic benefits of increased openness could dwarf the static benefits found by more conventional applied general equilibrium models.

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  • Timothy J. Kehoe, 1992. "Modeling the dynamic impact of North American free trade," Working Papers 491, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmwp:491
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    References listed on IDEAS

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    Cited by:

    1. Kehoe, Timothy J., 2002. "An Evaluation of the Performance of Applied General Equilibrium Models of the Impact of NAFTA," Conference papers 331066, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. Julio Huato, 2005. "Maquiladoras and Standard of Living in Mexico Before and After NAFTA," Development and Comp Systems 0508006, University Library of Munich, Germany.
    3. Braga, Carlos A. Primo & Safadi, Raed & Yeats, Alexa, 1994. "NAFTA's Implications for East Asian exports," Policy Research Working Paper Series 1351, The World Bank.
    4. Timothy J. Kehoe & Kim J. Ruhl, 2010. "Why Have Economic Reforms in Mexico Not Generated Growth?," Journal of Economic Literature, American Economic Association, vol. 48(4), pages 1005-1027, December.
    5. Murray G Smith, 2011. "The North American Free Trade Agreement: Fait Accompli?," Chapters, in: Miroslav N. Jovanović (ed.), International Handbook on the Economics of Integration, Volume I, chapter 15, Edward Elgar Publishing.
    6. Sven Arndt, 1996. "North American Free Trade: An assessment," Open Economies Review, Springer, vol. 7(1), pages 77-92, January.
    7. González-Vega, Claudio, 1995. "Strategic options of commercial policy for Central America: basic guidelines," Oficina de la CEPAL en Washington (Estudios e Investigaciones) 28977, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    8. Plummer, Michael G., 2006. "Toward Win-Win Regionalism in Asia: Issues and Challenges in Forming Efficient Trade Agreements," Working Papers on Regional Economic Integration 5, Asian Development Bank.

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