Working Paper: NBER ID: w11059
Authors: 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.
Keywords: NAFTA; CUSFTA; International Trade; Trade Agreements; Demand Elasticities
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| NAFTA (F15) | international trade volumes (F10) |
| tariff reductions (F13) | trade volumes (F10) |
| trade volumes (F10) | prices (P22) |
| tariff reductions (F13) | welfare (I38) |
| NAFTA (F15) | North American output (N52) |
| tariffs (F13) | demand shifts (J20) |
| tariff preferences (F13) | trade volumes (F10) |
| elasticity of substitution (D11) | consumers' willingness to switch sources (D16) |