North–South trade liberalization and returns to skill in the south: The case of Mexico

This study examines the effect of North American Free Trade Agreement (NAFTA), an instance of North–South trade liberalization, on returns to skill in Mexico. Mexico is abundant in low-skill workers relative to the US and Canada, and so, by the Heckscher–Ohlin–Samuelson trade model, NAFTA ought to have raised the relative earnings of low-skill workers, that is, lowered returns to skill in Mexico. Analysis of Mexican labour micro-data yields the finding that while returns to skill in industries producing tradeables have risen, ceteris paribus, since Mexico embarked upon trade liberalization by joining the GATT in 1986, this rise was less pronounced by 1999 in industries liberalized relatively rapidly by NAFTA, launched in 1994, than in industries liberalized relatively slowly by this phased trade treaty. This is considered evidence of NAFTA holding back rise in returns to skill, since it is plausible such a dampening would have been more marked in industries more rapidly exposed to trade with Mexico's skill abundant northern neighbours. Hence, this study suggests trade with developed nations may lower returns to skill in developing nations.     

Charting the pacific: an empirical assessment of integration initiatives

Trade negotiations after Uruguay may well be dominated by the Pacific Rim, where two free trade areas (ASEAN Free Trade Agreement, or AFTA; and North American Free Trade Agreement, or NAFTA) already exist and larger agreements are under active discussion (involving the Asia Pacific Economic Cooperation, or APEC, area and an East Asian Economic Group). This article analyzes several initiatives using a simple global general equilibrium model that incorporates conventional welfare gains as well as benefits derived from firm level economies of scale, induced changes in foreign investment, and dynamic increases in productivity. Broad Pacific liberalization—i.e., East Asia, North America, and Australasia—is shown to be superior for each participant to liberalization limited to individual countries or East Asia, but not by much. Most favored nation liberalization is shown to be superior for each participant to preferential liberalization—if the actor is East Asia, but not the Pacific as a whole. These estimates will need to be refined, but they suggest that the benefits from Pacific liberalization could exceed $100 billion per year.     

A Canadian perspective on NAFTA

Although most analysis of the North American Free Trade Agreement (NAFTA) has focused on the bilateral relationship between Mexico and the United States this article concentrates on the larger trading and investment linkages of Canada and the United States. From a Canadian perspective the NAFTA is an extension of (and improvement upon) the Canada–U.S. Free Trade Agreement (FTA) of 1989. The FTA introduced new dispute settlement mechanisms that Canada views as essential to partially offset U.S. administered protection. The new rules-based system of the FTA is also the basis for the NAFTA, and it has been extended from the trade law regime to cover foreign investment disputes. All three parties in NAFTA will benefit from a rules-based system rather than the power-based system that permits U.S. producer interests to exploit the size asymmetries between the large triad market of the United States and the smaller open trading economies of Mexico and Canada. © 1995 John Wiley & Sons, Inc.     

The NAFTA and the Environment: Trade,diplomacy, and limited protection

This article reviews the North American Free Trade Agreement (NAFTA) and its provisions on environmental protection. It describes how NAFTA followed from previous international environmental and trade arrangements. NAFTA's environmental provision adopts the position that economic growth will promote environmental protection and that enforcement is best accomplished through diplomatic means rather than through trade sanctions. The major importance of NAFTA's treatment of the environment is the precedent it sets to include environmental issues into future trade treaties.     

Technology transfer in Mexico: Past patterns and new problems related to the North American free trade agreement

As the Mexican economy prepares to transition from a relatively closed and protected market to a regionally integrated free market which is part of the proposed North American Free Trade Agreement (NAFTA), a change in its technology licensing environment will be needed to enable Mexican companies to compete for technology with firms from the other member countries of the NAFTA. This study identifies the national sources which have provided Mexico with technology and the Mexican industrial sectors which have been able to attract this technology in the 1980s. It further evaluates the current licensing environments in Canada, Mexico, and the U.S.A. as well as in the Latin American Integration Association (LAIA). The study provides recommendations for changes to the Mexican licensing environment and proposes strategies for attracting technology to Mexican industry under the changed conditions which would be introduced by the NAFTA. © 1993 John Wiley & Sons, Inc.     

REVEALED PREFERENCE TESTS OF THE STOLPER?SAMUELSON THEOREM

This article conducts revealed preference tests of the Stolper-Samuelson theorem. If the Stolper?Samuelson theorem holds, one would expect to find a country's relatively scarce factor of production (in this case labor) harmed from trade liberalization and thus opposing trade liberalization. The reverse would be true for its relatively abundant factor of production (in this case capital). Therefore, this article examines representations made before the Canadian House of Commons committee studying the Canadian?U.S. Free Trade Agreement. Assuming representations coincide with the self-interest of the presenters, the effects of trade liberalization on factor returns are inferred. It finds strong support for the proposition that labor behaves as the Stolper?Samuelson theorem would predict and qualified support for capital behaving as the Stolper?Samuelson theorem would predict.     

Firm Characteristics and Managerial Perceptions of NAFTA: An Assessment of Export Implications for U.S. SMEs

The North American Free Trade Agreement (NAFTA) may present significant opportunities or significant threats for small and medium–sized firms based in the U.S. Arguments are developed that explore the relationship among four internal firm characteristics and managers' perceptions of NAFTA. Managers' perceptions of NAFTA are measured as either favorable or unfavorable. The firm dimensions examined are strategy, performance, export experience, and size. The findings imply that managers' exhibiting favorable perceptions of NAFTA are related positively to differentiation strategy, performance, export experience, and size. A cost–leadership strategy demonstrated no discernable relationship with regard to perceptions about NAFTA. Implications and directions for future research are discussed.     

Relative prices and wage inequality: evidence from Mexico

This paper examines the link between relative goods prices and relative wages during two periods of Mexico's trade liberalization. The relative price of skill-intensive goods rose following Mexico's entrance to the General Agreement and Tariffs and Trade (GATT) in 1986, but fell after Mexico entered the North American Free Trade Agreement (NAFTA) in 1994. This paper adds a band pass filter to two established techniques to compare the relationship between prices and wages. Results from all three approaches are consistent with a positive long-run relationship between relative output prices and relative wages. The band pass filter results suggest that the relevant time frame for the relationship begins after 3-5 years.     

Trade liberalization and industrial restructuring through mergers and acquisitions

This paper analyzes mergers and acquisitions (M&As) as a channel of industrial restructuring after trade liberalization. Using the Canada-United States Free Trade Agreement (CUSFTA) of 1989 as a source of exogenous variation in trade barriers, I show that trade liberalization increased domestic Canadian M&A activity (Canadian firms buying other Canadian firms) by over 70%. There is no robust link between tariff reductions and either domestic U.S. or cross-border M&As. I also provide evidence that domestic M&As transferred resources from less to more productive firms and that the magnitude of the overall transfer was quantitatively important.     

IMPACT OF THE NORTH AMERICAN FREE TRADE AGREEMENT ON THE U.S. TRADE WITH MEXICO

The North American Free Trade Agreement (NAFTA) took effect on January 1, 1994. The agreement is designed to reduce trade restrictions and enhance trade among Mexico, Canada, and the United States. The primary objective of this article is to examine and estimate the impact of NAFTA on the trade between Mexico and the United States. The data from 1989 to 1998 were used to estimate the overall trade as well as trade in three important products. The trade statistics were divided into two time periods: 1989-1993, before NAFTA, and 1994-1998, after NAFTA. The regression analysis and statistical t-test were employed to determine whether there were significant differences in the dollar volume of trade between the two time periods. The analysis of the data demonstrates that the trade between the United States and Mexico was significantly larger after NAFTA, which could not be attributed to other factors. However, the effects of other factors were analyzed. The success of the NAFTA model may have future policy implications in forging a Free Trade Area of the Americas (FTAA) in the near future.     

Trade Reform and Poverty: The Case of Mexico

We use a two‐step computationally simple procedure to analyse the effects of Mexico's's potential unilateral tariff liberalisation on real incomes. First, we use the CGE model provided by the Global Trade Analysis Project (GTAP) as the new price generator. Second, we apply the price changes to Mexican household data in order to assess the effects of the policy simulation on poverty and income distribution. Although Mexico widely liberalised most of its imports by the mid 90s, one salient feature is its membership in the North American Free Trade Agreement (NAFTA) with Canada and United States. By choosing GTAP as the price generator, we are able to model the differential tariff structure. Even starting with a low level of tariff protection, simulation results show that the impact of tariff reform on welfare will be positive in general for all expenditure deciles. We find that, when we assume non‐homothetic individual preferences, trade liberalisation benefits people in the poorer deciles more than those in the richer ones.     

Trade liberalization and industrial restructuring through mergers and acquisitions

This paper analyzes mergers and acquisitions (M&As) as a channel of industrial restructuring after trade liberalization. Using the Canada–United States Free Trade Agreement (CUSFTA) of 1989 as a source of exogenous variation in trade barriers, I show that trade liberalization increased domestic Canadian M&A activity (Canadian firms buying other Canadian firms) by over 70%. There is no robust link between tariff reductions and either domestic U.S. or cross-border M&As. I also provide evidence that domestic M&As transferred resources from less to more productive firms and that the magnitude of the overall transfer was quantitatively important.     

The giant awakens: An interview with Professor Jagdish Bhagwati on economic reform in India

Few people are in a better position to reflect on the pace and substance of economic liberalization in India than Professor Jagdish Bhagwati. The author of four books on Indian economics, two on world trade, and an advisor to the Director General of the General Agreement on Tariffs and Trade (GATT), Bhagwati is an authority on the economic issues facing India today. Optimistic about India's future, he discusses the serious obstacles to liberalization that India has already overcome, and looks ahead to India's expanded involvement in world trade.     

Canada's Anti‐dumping and Safeguard Policies: Overt and Subtle Forms of Discrimination

Like many countries in the international trading system, Canada repeatedly faces political pressure from industries seeking protection from import competition. I examine Canadian policymakers’ response to this pressure within the economic environment created by its participation in discriminatory trade agreements such as the North American Free Trade Agreement (NAFTA). In particular, I exploit new sources of data on Canada's use of potentially WTO‐consistent import‐restricting policies such as anti‐dumping, global safeguards and a China‐specific safeguard. I illustrate subtle ways in which Canadian policymakers may be structuring the application of such policies so as to reinforce the discrimination inherent in Canada's external trade policy because of the preferences granted to the United States and Mexico through NAFTA.     

Multinationals and the investment provisions of the nafta

The foreign direct investment (FDI) provisions of the North American Free Trade Agreement (NAFTA) are examined in light of a worldwide trend toward liberalization of the policy environment for multinational firms. We first examine the rationale for entering into international investment negotiations from the perspective of the three signatories—Canada, Mexico, and the United States—and then analyze the accomplishments embodied in the resulting investment provisions. We also briefly address areas where these provisions could be strengthened and that may be on the agenda of future international trade and investment negotiations, whether in other fora or during negotiations involving accession of new member states to the NAFTA.     

Putting Canada in the penalty box: Trade and welfare effects of eliminating North American Free Trade Agreement

Three years ago, very few economists would have imagined that one of the newest and fastest growing research areas in international trade is the use of quantitative trade models to estimate the economic welfare losses from dissolutions of major countries' economic integration agreements (EIAs). In 2016, "Brexit" was passed in a UK referendum. Moreover, in 2019, the existence of the entire North American Free Trade Agreement (NAFTA) is at risk if the US withdraws—a threat President Trump has made if the proposed US–Mexico–Canada Agreement is not passed by the US Congress. We use state‐of‐the‐art econometric methodology to estimate the partial (average treatment) effects on international trade flows of the six major types of EIAs. Armed with precise estimates of the average treatment effect for a free trade agreement, we examine the general equilibrium trade and welfare effects of the elimination of NAFTA (and for robustness US withdrawal only). Although all the member countries' standards of living fall, surprisingly the smallest economy, Mexico, is not the biggest loser; Canada is the biggest loser. Canada's welfare (per capita income) loss of 2.11% is nearly two times that of Mexico's loss of 1.15% and is nearly eight times the US' loss of 0.27%. The simulations will illustrate the important influence of trade costs—international and intranational—in contributing to the gains (or losses) from an EIA's formation (or elimination).     

An environmental agenda for APEC: Lessons from NAFTA

The Asia Pacific Economic Cooperation (APEC) forum has been slow to deal with trade and the environment issues. In contrast, the North American Free Trade Agreement (NAFTA) and its environmental side agreement incorporate extensive environmental provisions and institutions in its framework. APEC could usefully build upon the NAFTA experience.     

Multinational enterprise strategy and the NAFTA trade and environment regime

The North American Free Trade Agreement (NAFTA) is the first international trade treaty to explicitly incorporate a process to accommodate political aspects of the natural environment. It does this primarely through the creation of the NAFTA Commission on Environmental Cooperation (CEC), but also through associated committees and regulations. In this paper we use “regime” analysis from political science to assess these institutional aspects of NAFTA as they affect the strategies of multinational enterprises (MNEs). We draw out implications for public policy and corporate strategy based on extensive interviews of relevant government and business leaders; as well as senior bureaucrats involved in the administration of NAFTA trade and environment policy.     

Was für und was gegen die Neuverhandlung des NAFTA spricht

With the election of a new president in the US, the North American Free Trade Agreement (NAFTA) is back on the international trade policy agenda. This article sets out US motivations to push for a renegotiation and examines the pros and cons of renegotiating the agreement. While there are good reasons to update NAFTA, a new agreement or even a US withdrawal from the treaty will not meet the expectations raised in President Trump’s election campaign.     

Brazil and Mexico—Partners in sowing a free trade area of the Americas

The second half of 2000 brought renewed interest to the Free Trade Agreement of the Americas (FTAA). This hemispheric economic integration initiative presents numerous opportunities and challenges for each of the 34 countries involved in unifying markets across the Americas. The North American Free Trade Agreement (NAFTA) and Mercosur, the region's two largest trading blocs, play a vital role in any attempt to integrate Latin American markets. Integration under Mercosur has strengthened the position of member countries—especially Brazil, which is a choice location for foreign direct investment and has realized a significant growth in extra‐Mercosur trade. The newly elected Mexican president, Vicente Fox, has demonstrated a strong desire to bring Mexico to the forefront of hemispheric trade negotiations and brings a new dynamic to integration of Latin American markets and to the FTAA initiative. This article elaborates on the role of the two largest Latin American economies and the United States in the creation and solidification of a hemispheric trading bloc in the Americas. © 2002 Wiley Periodicals, Inc.