An Industrial Analysis of Trade Creation and Diversion Effects of NAFTA

Abstract

Welfare effects o f economic integration are o ften studied with aggregate data, and as such provide limited insights about the effects o f trade pacts to individual economic agents in the free trade area.In this study a three-digit disaggregated commodity/industry data grouped under the Standard International Trade Classification is used to empirically assess the economic benefits o f the North American Free Trade Agreement (NAFTA).Im port demand elasticities from a dynamic demand model were used to estimate both trade creation and trade diversion effects o f removing a ll t a r i f f barriers from among N A F T A countries -US, Canada and Mexico.Results show that US imports o f crude oil and petrole um products from Canada and most US imports from Mexico are more sensi tive to domestic prices than to bilateral import prices.Further, results indicate

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