The NAFTA Preference and US‐Mexico Trade: Aggregate‐Level Analysis

Christine A. McDaniel · Laurie‐Ann Agama

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Global trade and economics International Relations in Latin America Canadian Policy and Governance

Abstract

This paper focuses on the US tariff preference afforded to Mexico relative to non‐NAFTA trading partners and evaluates the trade effects of NAFTA in a manner consistent with the idea behind a preferential trading agreement. The estimation technique exploits the time‐varying dimension of the tariff preference over 1989 to 2001. This is important because the tariff preference for Mexico into the United States market existed prior to NAFTA. Further, the NAFTA preference was phased in over time. We find that a higher US tariff preference for Mexico corresponds to increased US import demand for Mexican goods, and that a higher Mexican tariff preference for the United States corresponds to increased Mexican demand for US exports. Interestingly, import demand was more responsive to changes in the tariff preference once NAFTA was in place than it was on average.

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References

1985Chapter 20 Income and price effects in foreign trade 2001Trade creation and trade diversion in the Canada – United States Free Trade Agreement 2001The Impact of NAFTA on the United States 1992A North American Free Trade Agreement: Analytical Issues and a Computational Assessment 1976An Empirical Examination of the Traditional Aggregate Import Demand Model 2000NAFTA's Effects: A Preliminary Assessment 1996Modeling the U.S. demand for imports through cointegration and error correction 1998Has NAFTA changed North American trade

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