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NAFTA's and CUSFTA's Impact on International Trade

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  • John Romalis

Abstract

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.

Suggested Citation

  • John Romalis, 2005. "NAFTA's and CUSFTA's Impact on International Trade," NBER Working Papers 11059, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:11059
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    JEL classification:

    • F1 - International Economics - - Trade

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