The Review of Economic Studies· 2014Q1
Estimates of the Trade and Welfare Effects of NAFTA
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- Q1SCImago
- 2014year
Short summary
NAFTA tariff reductions increased Mexico's welfare by 1.31% and U.S. welfare by 0.08%, while Canada's declined 0.06%, according to a Ricardian model incorporating sectoral linkages and intermediate goods.
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Key points
- Mexico's welfare increased by 1.31%, U.S. by 0.08%, and Canada's declined by 0.06% due to NAFTA tariff reductions.
- Intra-bloc trade increased by 118% for Mexico, 41% for the U.S., and 11% for Canada.
- The model incorporates sectoral linkages and intermediate goods trade, which are crucial for accurate welfare effect quantification.
- A new method for estimating sectoral trade elasticities consistent with multiplicative gravity models is proposed.
AI-generated from the title and abstract; the full text is not read.
Abstract
We build into a Ricardian model sectoral linkages, trade in intermediate goods, and sectoral heterogeneity in production to quantify the trade and welfare effects from tariff changes. We also propose a new method to estimate sectoral trade elasticities consistent with any trade model that delivers a multiplicative gravity equation. We apply our model and use our estimated elasticities to identify the impact of NAFTA's tariff reductions. We find that Mexico's welfare increases by 1.31%, U.S.'s welfare increases by 0.08%, and Canada's welfare declines by 0.06%. We find that intra-bloc trade increases by 118% for Mexico, 11% for Canada, and 41% for the U.S. We show that welfare effects from tariff reductions are reduced when the structure of production does not take into account intermediate goods or input-output linkages. Our results highlight the importance of sectoral heterogeneity, intermediate goods, and sectoral linkages for the quantification of the welfare gains from tariffs reductions.
The authors' abstract, as published at the source. The Review of Economic Studies, 2014 · DOI ↗
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Field: General Economics, Econometrics and Finance
General Economics, Econometrics and FinanceEconomics, Econometrics and Finance