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Working Papers Series

Dynamic Trade Liberalization Analysis:
Steady State, Transitional and InterIndustry Effects
By Michael A. Kouparitsas

Working Papers Series
Research Department
WP 98-15

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2.

Table 1
Benchmark model parameters
Canada
Preferences
β
σ
N
θc
1/η
ωc consistent with expenditure share:
1/κ
ωc1 consistent with expenditure share:
ωc2 consistent with expenditure share:
ωc5 consistent with expenditure share:
(φd’’/φd’)/ (id/d)
Investment
δ
1/υ
ωi3 consistent with expenditure share:
ωi4 consistent with expenditure share:
ωi5 consistent with expenditure share:
(φk’’/φk’)/ (ik/k)
Production
1/ε
Primary Sector
θ1
α1
ωy1 consistent with cost share:
α11 consistent with cost share:
α12 consistent with cost share:
α13 consistent with cost share:
α14 consistent with cost share:
α15 consistent with cost share:
(φk1’’/φk1’)/ (k1/k)
(φN1’’/φN1’)/ (N1/N)
Non-Durable Manufacturing Sector
θ2
α2
ωy2 consistent with cost share:
α21 consistent with cost share:
α22 consistent with cost share:
α23 consistent with cost share:
α24 consistent with cost share:
α25 consistent with cost share:
(φk2’’/φk2’)/ (k2/k)
(φN2’’/φN2’)/ (N2/N)
Durable Manufacturing Sector
θ3
α3
ωy3 consistent with cost share:
α31 consistent with cost share:
α32 consistent with cost share:

Mexico

US

ROW

All
0.98
2.00
0.20

0.23

0.29

0.21

0.20
1.00
0.81
1.00

0.01
0.17
0.82

0.08
0.24
0.68

0.01
0.17
0.82

0.01
0.17
0.82
-10.00
0.025
1.00

0.52
0.39
0.09

0.41
0.47
0.12

0.52
0.39
0.09

0.52
0.39
0.09
-10.00
0.10

0.31
0.35
0.51
0.23
0.19
0.06
0.02
0.49

0.27
0.35
0.71
0.31
0.34
0.13
0.00
0.21

0.31
0.35
0.48
0.40
0.16
0.05
0.02
0.37

0.31
0.35
0.48
0.40
0.16
0.05
0.02
0.37
-1.50
-0.02

0.57
0.43
0.36
0.26
0.42
0.05
0.01
0.26

0.37
0.63
0.39
0.37
0.40
0.04
0.00
0.19

0.52
0.48
0.39
0.23
0.45
0.06
0.01
0.25

0.52
0.48
0.39
0.23
0.45
0.06
0.01
0.25
-10.00
-10,000

0.68
0.32
0.36
0.12
0.06

0.43
0.57
0.43
0.11
0.10

0.68
0.32
0.43
0.03
0.10

0.68
0.32
0.43
0.03
0.10

Table 1 (cont.)
Benchmark model parameters
α33 consistent with cost share:
α34 consistent with cost share:
α35 consistent with cost share:
(φk3’’/φk3’)/ (k3/k)
(φN3’’/φN3’)/ (N3/N)
Construction Sector
θ4
α4
ωy4 consistent with cost share:
α41 consistent with cost share:
α42 consistent with cost share:
α43 consistent with cost share:
α44 consistent with cost share:
α45 consistent with cost share:
(φk4’’/φk4’)/ (k4/k)
(φN4’’/φN4’)/ (N4/N)
Services Sector
θ5
α5
ωy5 consistent with cost share:
α51 consistent with cost share:
α52 consistent with cost share:
α53 consistent with cost share:
α54 consistent with cost share:
α55 consistent with cost share:
(φk5’’/φk5’)/ (k5/k)
(φN5’’/φN5’)/ (N5/N)

Trade
Primary
1/µ1
ω1can consistent with expenditure share:
ω1mexconsistent with expenditure share:
ω1usa consistent with expenditure share:
ω1row consistent with expenditure share:
Non-Durable Manufacturing
1/µ2
ω2can consistent with expenditure share:
ω2mexconsistent with expenditure share:
ω2usa consistent with expenditure share:
ω2row consistent with expenditure share:
Durable Manufacturing
1/µ3
ω3can consistent with expenditure share:
ω3mexconsistent with expenditure share:
ω3usa consistent with expenditure share:
ω3row consistent with expenditure share:

Canada
0.59
0.00
0.22

Mexico
0.51
0.00
0.28

US
0.57
0.01
0.29

ROW
0.57
0.01
0.29

All

-10.00
-10,000
0.73
0.27
0.47
0.07
0.10
0.47
0.00
0.35

0.70
0.30
0.50
0.03
0.09
0.59
0.00
0.29

0.66
0.34
0.47
0.02
0.08
0.47
0.00
0.42

0.66
0.34
0.47
0.02
0.08
0.47
0.00
0.42
-10.00
-10,000

0.52
0.48
0.62
0.02
0.15
0.07
0.04
0.72

0.40
0.60
0.80
0.01
0.18
0.11
0.08
0.62

0.67
0.33
0.66
0.03
0.12
0.06
0.06
0.73

0.67
0.33
0.66
0.03
0.12
0.06
0.06
0.73
-10.00
-10,000

3.00
0.77
0.01
0.13
0.09

0.00
0.88
0.06
0.06

0.04
0.04
0.80
0.12

0.02
0.02
0.07
0.90

0.80
0.00
0.14
0.05

0.00
0.87
0.08
0.05

0.02
0.01
0.90
0.07

0.00
0.00
0.03
0.97

0.50
0.01
0.36
0.13

0.01
0.61
0.24
0.14

0.06
0.02
0.75
0.17

0.01
0.00
0.07
0.92

3.00

3.00

Table 2
Levels of protection in North America prior to implementation of CFTA and NAFTA
Tariff rates

Composite protection rates (tariffs and NTBs)

Primary products

Primary products
Exporter

Importer
Canada
Mexico
U.S.

Canada
0.00
0.01

Mexico
0.01

U.S.
0.01
0.02

0.01

Exporter
ROW
0.00
0.00
0.01

Non-durable manufactured goods

Importer
Canada
Mexico
U.S.

Canada
0.80
0.61

Canada
0.04
0.04

Mexico
0.18

U.S.
0.07
0.05

0.05

ROW
0.14
0.10
0.10

Importer
Canada
Mexico
U.S.

Canada
0.78
0.16

0.01
0.01

Mexico
0.04
0.03

Mexico
0.68

U.S.
0.34
0.41

0.22

ROW
0.44
0.47
0.20

Durable manufactured goods

Exporter
Canada

0.88

ROW
0.27
0.72
0.77

Exporter

Durable manufactured goods

Importer
Canada
Mexico
U.S.

U.S.
0.61
0.81

Non-durable manufactured goods

Exporter
Importer
Canada
Mexico
U.S.

Mexico
0.20

U.S.
0.02
0.03

Exporter
ROW
0.04
0.02
0.03

Importer
Canada
Mexico
U.S.

Canada
0.01
0.39

Mexico
0.25
0.07

U.S.
0.26
0.13

ROW
0.31
0.22
0.28

Notes: Roland-Holst et al. (1994) report estimates for 26 sectors. Sectoral aggregates reported in this article are
weighted by 1992 import shares. ROW is rest of the world.
Source: Roland-Holst, Reinert and Shiells (1994)

Table 3
Long-run effects of competing North American trade liberalization schemes
(percentage deviation from pre-NAFTA steady state)
Variable

Canada

Tariffs only
Mexico
USA

ROW

Tariffs and Non-Tariff Barriers
Canada Mexico
USA
ROW

Welfare effects
Steady state gain
Transitional cost
Net effect

0.03
0.03
-0.00

0.43
0.20
0.23

0.04
0.03
0.02

0.01
0.01
-0.01

0.13
0.17
-0.04

3.11
1.24
1.88

0.29
0.15
0.15

0.06
0.07
-0.01

Real GDP
Real consumption

0.01
0.03

0.91
0.68

0.03
0.05

-0.00
0.00

0.10
0.17

3.64
3.89

0.22
0.38

-0.03
0.04

Labor hours
Real wage
Capital stock
Real rental rate

-0.00
0.03
0.02
-0.01

0.40
0.77
1.38
-0.35

0.01
0.05
0.07
-0.03

-0.00
0.00
-0.00
-0.00

0.05
0.18
0.16
0.01

1.27
4.21
5.79
-1.56

0.09
0.40
0.46
-0.00

-0.02
0.03
-0.04
0.04

Total imports

0.12

4.42

0.57

0.00

0.62

26.04

3.49

0.21

Exports to World
to Canada
to Mexico
to US
to ROW

0.10

5.70
14.14

30.85
63.81

3.85
-0.40
43.24

7.66
-0.58

-0.10
-0.15
-0.23
-0.08

0.62

3.78
0.05
0.12

0.56
-0.14
7.22

-0.84
-0.79
-3.32
-0.69

0.02

Terms of trade
Net foreign assets/GDP

-0.04
0.19

0.03
-3.18

0.00
0.00

Primary
Output
Labor hours
Capital stock
Exports

0.01
-0.00
0.03
0.04

0.57
0.39
1.29
0.34

Nondurable mfg.
Output
Labor hours
Capital stock
Exports

-0.06
-0.07
-0.04
0.11

Durable mfg.
Output
Labor hours
Capital stock
Exports

Aggregate effects

23.73
0.18
1.09

45.20
-11.06

0.66

0.00
0.13

-0.28
0.97

0.74
-13.45

-0.13
-0.35

0.13
0.74

0.01
0.00
0.02
0.35

-0.00
-0.00
-0.01
-0.07

-0.55
-0.01
-1.34
-1.39

4.03
1.41
9.73
32.89

-0.99
-0.01
-2.52
10.73

-0.39
-0.06
-0.94
-6.57

1.41
0.77
1.76
10.56

-0.00
-0.04
0.03
0.60

-0.01
-0.01
-0.01
-0.08

0.09
-0.05
0.18
0.94

2.05
-0.96
3.71
41.21

0.91
0.63
1.02
7.40

-0.03
-0.06
-0.04
-1.07

0.04
0.03
0.06
0.11

1.86
1.29
2.24
7.72

0.07
0.05
0.12
-0.13

-0.02
-0.02
-0.02
-0.14

0.54
0.45
0.64
0.90

6.59
4.06
8.28
26.19

0.36
0.20
0.62
-0.77

-0.03
-0.04
-0.02
-0.53

Construction
Output
Labor hours
Capital stock
Exports

0.01
0.01
0.03

0.98
0.64
1.65

0.04
0.01
0.08

-0.00
-0.00
-0.00

0.10
0.03
0.25

4.35
2.88
7.21

0.26
0.09
0.53

-0.02
-0.03
-0.01

Services
Output
Labor hours
Capital stock
Exports

0.01
0.00
0.03

0.68
0.05
1.11

0.03
0.00
0.08

-0.00
-0.00
-0.00

0.08
-0.04
0.19

3.21
0.48
5.03

0.17
0.01
0.45

-0.01
-0.02
-0.00

Sectoral effects

Table 4
Long-run effects of NAFTA under different parameters (trade policies)
(deviation from benchmark model expressed as a percentage of pre-NAFTA steady state )
Variable

100% liberalization Jan 1993
Canada Mexico
USA
ROW

Canada

15 year liberalization
Mexico
USA
ROW

Welfare effects
Steady state gain
Transitional cost
Net effect

-0.11
-0.09
-0.02

0.70
-0.10
0.80

0.05
-0.02
0.06

-0.04
-0.04
-0.00

0.03
0.03
0.01

-0.22
0.02
-0.24

-0.01
0.00
-0.02

0.01
0.01
0.00

Real GDP
Real consumption

0.02
-0.06

-0.14
0.47

-0.02
0.02

0.02
-0.02

-0.01
0.02

0.03
-0.16

0.00
-0.01

-0.01
0.00

Labor hours
Real wage
Capital stock
Real rental rate

0.05
-0.05
-0.02
0.03

-0.38
0.37
0.05
-0.11

-0.03
0.02
-0.00
-0.01

0.02
-0.01
0.01
0.00

-0.01
0.01
0.00
-0.01

0.12
-0.13
-0.03
0.04

0.01
-0.01
-0.00
0.01

-0.01
0.00
-0.00
-0.00

Total imports

-0.10

1.20

0.12

-0.30

0.03

-0.35

-0.04

0.09

Exports to World
to Canada
to Mexico
to US
to ROW

0.15

-1.42
-1.66

0.42
0.49

0.05
0.05
-0.31

-1.56
-1.04

0.34
0.17
1.41
0.29

-0.04

1.30
0.20
-0.04

-0.16
-0.17
1.07

-0.10
-0.05
-0.42
-0.09

-0.29

Terms of trade
Net foreign assets/GDP

-0.06
-0.68

0.49
5.15

0.06
0.34

Primary
Output
Labor hours
Capital stock
Exports

0.05
0.06
0.08
0.01

-0.24
-0.39
-0.37
-0.75

Nondurable mfg.
Output
Labor hours
Capital stock
Exports

0.07
0.10
0.03
0.20

Durable mfg.
Output
Labor hours
Capital stock
Exports

Aggregate effects

-0.38
-0.06
0.01

0.46
0.31

0.09

-0.12
-0.38

0.02
0.19

-0.14
-1.57

-0.02
-0.10

0.04
0.12

-0.02
-0.03
-0.02
-0.04

0.05
0.03
0.09
0.15

-0.02
-0.02
-0.03
-0.00

0.07
0.12
0.09
0.23

0.00
0.01
0.00
0.01

-0.01
-0.01
-0.03
-0.05

-0.20
-0.53
-0.04
-1.72

-0.03
-0.05
-0.02
-0.16

0.03
0.04
0.02
0.37

-0.02
-0.03
-0.01
-0.06

0.05
0.16
-0.01
0.51

0.01
0.01
0.00
0.05

-0.01
-0.01
-0.01
-0.11

0.14
0.17
0.08
0.16

-1.04
-1.38
-0.81
-1.76

-0.09
-0.11
-0.07
-0.15

0.08
0.09
0.06
0.22

-0.04
-0.05
-0.03
-0.05

0.31
0.42
0.23
0.52

0.03
0.03
0.02
0.05

-0.02
-0.03
-0.02
-0.07

Construction
Output
Labor hours
Capital stock
Exports

-0.01
0.01
-0.06

0.01
-0.15
0.30

-0.00
-0.01
0.01

0.01
0.01
-0.00

0.00
-0.00
0.01

0.00
0.06
-0.10

0.00
0.01
-0.01

-0.00
-0.00
0.00

Services
Output
Labor hours
Capital stock
Exports

-0.01
0.02
-0.05

0.09
-0.19
0.27

0.00
-0.01
0.02

0.00
0.01
-0.01

0.00
-0.01
0.01

-0.04
0.06
-0.10

-0.00
0.00
-0.01

-0.00
-0.00
0.00

Sectoral effects

Table 5
Long-run effects of NAFTA under different parameters (trade elasticities)
(deviation from benchmark model expressed as a percentage of pre-NAFTA steady state )
Variable

Low elasticity of substitution
Canada Mexico
USA
ROW

High elasticity of substitution
Canada Mexico
USA
ROW

Welfare effects
Steady state gain
Transitional cost
Net effect

-0.04
-0.04
0.01

-1.06
0.27
-1.34

-0.11
-0.01
-0.10

-0.02
-0.04
0.02

0.05
0.02
0.03

2.79
-0.65
3.44

0.32
0.01
0.32

0.11
0.11
-0.00

Real GDP
Real consumption

0.02
-0.03

-0.35
-0.95

0.02
-0.08

0.04
-0.01

0.14
0.15

-1.80
1.44

-0.14
0.18

-0.04
0.09

Labor hours
Real wage
Capital stock
Real rental rate

0.01
-0.03
0.04
-0.04

0.19
-0.90
-0.81
0.33

0.03
-0.07
0.00
-0.03

0.02
-0.00
0.07
-0.04

0.12
0.19
0.13
0.07

-2.20
0.89
-1.58
-0.02

-0.15
0.14
-0.11
0.11

-0.02
0.09
-0.09
0.12

Total imports

-0.24

-15.61

-2.04

0.13

0.89

53.50

6.97

-0.51

Exports to World
to Canada
to Mexico
to US
to ROW

-0.22

-18.39
-40.59

60.44
137.57

7.71
-1.65
93.00

-28.03
9.77

0.73
0.51
3.76
0.56

1.24

-14.05
0.10
-0.66

-2.24
0.47
-26.96

-2.42
-1.42
-13.98
-1.78

-0.25

Terms of trade
Net foreign assets/GDP

0.13
-0.55

-1.74
10.96

-0.01
0.33

Primary
Output
Labor hours
Capital stock
Exports

0.52
0.05
1.25
1.13

-0.22
0.19
-0.74
-19.07

Nondurable mfg.
Output
Labor hours
Capital stock
Exports

0.08
0.13
0.08
-0.40

Durable mfg.
Output
Labor hours
Capital stock
Exports

Aggregate effects

48.45
0.06
3.03

93.47
-36.21

0.85

0.22
-0.64

-0.26
-0.32

0.34
-17.63

-0.02
-1.10

0.08
1.43

0.80
0.10
1.90
-7.71

0.31
0.04
0.74
5.08

-1.51
-0.01
-3.71
-3.47

-2.00
-2.28
-3.78
63.87

-1.77
-0.29
-4.18
30.36

-1.29
-0.12
-3.13
-20.50

1.51
2.35
1.05
-25.53

-0.27
-0.22
-0.27
-4.63

0.05
0.05
0.07
0.88

-0.21
-0.42
-0.09
1.35

-8.20
-9.34
-7.68
87.03

0.73
0.64
0.69
15.91

0.00
-0.07
-0.03
-2.83

-0.24
-0.21
-0.24
-0.42

-1.17
-0.53
-1.58
-15.66

0.11
0.15
0.06
0.75

0.03
0.03
0.05
0.28

1.59
1.50
1.65
2.12

-2.49
-3.17
-2.07
49.65

-0.76
-0.83
-0.65
-2.83

0.11
0.09
0.12
-0.42

Construction
Output
Labor hours
Capital stock
Exports

0.02
0.04
-0.01

-0.56
-0.20
-1.27

0.01
0.04
-0.04

0.04
0.03
0.05

0.07
-0.04
0.26

-1.28
-1.62
-0.67

-0.07
-0.13
-0.01

-0.04
-0.07
-0.03

Services
Output
Labor hours
Capital stock
Exports

0.01
0.04
-0.01

-0.55
0.11
-0.99

0.00
0.03
-0.04

0.02
0.01
0.04

0.05
-0.11
0.19

-0.41
-0.95
-0.06

-0.04
-0.09
0.02

-0.01
-0.03
0.00

Sectoral effects

Table 6
Long-run effects of NAFTA under different parameters (sectoral adjustment costs)
(deviation from benchmark model expressed as a percentage of pre-NAFTA steady state )
Variable

No sectoral capital adj costs
Canada Mexico
USA
ROW

No sectoral labor adj costs
Canada Mexico
USA
ROW

Welfare effects
Steady state gain
Transitional cost
Net effect

0.01
0.00
0.01

-0.06
-0.06
-0.00

0.01
0.00
0.00

-0.00
0.00
-0.00

0.02
0.01
0.01

-0.13
-0.13
-0.00

0.01
0.01
0.01

-0.00
-0.00
-0.00

Real GDP
Real consumption

-0.02
-0.01

0.08
-0.03

-0.01
-0.01

-0.00
-0.01

-0.04
-0.02

0.01
-0.09

-0.03
-0.01

-0.01
-0.01

Labor hours
Real wage
Capital stock
Real rental rate

-0.02
-0.01
-0.03
-0.01

0.05
-0.01
0.11
-0.06

-0.01
-0.01
-0.01
-0.02

-0.01
-0.01
-0.00
-0.02

-0.04
-0.02
-0.04
-0.02

0.07
-0.07
-0.03
0.02

-0.03
-0.02
-0.03
-0.03

-0.01
-0.02
0.00
-0.03

Total imports

-0.02

0.15

-0.00

-0.01

-0.04

0.32

-0.01

-0.03

Exports to World
to Canada
to Mexico
to US
to ROW

-0.08

0.53
0.16

0.74
-0.04

-0.08
-0.04
0.36

0.17
1.51

-0.01
-0.01
0.11
-0.01

-0.14

0.11
-0.06
-0.14

-0.04
-0.02
0.18

0.01
-0.01
0.24
-0.01

-0.07

Terms of trade
Net foreign assets/GDP

0.04
0.07

-0.09
-0.70

0.02
0.03

Primary
Output
Labor hours
Capital stock
Exports

-0.12
-0.01
-0.43
-0.18

1.04
0.06
2.97
2.19

Nondurable mfg.
Output
Labor hours
Capital stock
Exports

-0.07
-0.06
-0.05
-0.09

Durable mfg.
Output
Labor hours
Capital stock
Exports

Aggregate effects

0.25
-0.10
-0.25

0.00
2.78

-0.15

-0.02
0.01

0.07
0.08

-0.09
-0.82

0.03
0.06

-0.04
-0.00

-0.50
-0.00
-1.54
-0.90

-0.04
0.00
-0.16
0.25

-0.18
-1.46
0.61
-0.28

1.90
6.69
0.30
4.05

-1.01
-4.09
0.50
-1.85

-0.03
-0.72
0.47
0.60

-0.01
0.20
-0.17
-0.32

-0.04
-0.08
0.03
0.00

-0.03
-0.03
-0.02
-0.03

-0.10
-0.04
-0.13
-0.11

0.03
-0.29
0.16
-0.34

-0.11
-0.06
-0.12
-0.08

-0.05
-0.03
-0.04
-0.02

-0.07
-0.08
-0.03
-0.06

-0.09
-0.14
-0.06
-0.29

0.03
0.01
0.07
0.02

-0.01
-0.01
-0.00
-0.04

-0.13
-0.09
-0.17
-0.12

-0.68
-0.99
-0.47
-1.10

0.07
0.10
0.02
0.06

-0.02
-0.01
-0.03
-0.08

Construction
Output
Labor hours
Capital stock
Exports

-0.02
-0.02
-0.00

0.07
0.08
0.05

-0.00
-0.02
0.03

-0.00
-0.00
0.01

-0.02
0.01
-0.08

-0.15
-0.31
0.15

-0.01
0.02
-0.05

-0.00
0.01
-0.01

Services
Output
Labor hours
Capital stock
Exports

-0.00
-0.00
0.00

-0.08
0.07
-0.17

0.00
-0.01
0.03

0.00
-0.00
0.01

-0.00
0.04
-0.05

-0.22
-0.50
-0.03

0.00
0.03
-0.04

0.00
0.01
-0.01

Sectoral effects

Table 7
Long-run effects of NAFTA under different parameters (domestic elasticities)
(deviation from benchmark model expressed as a percentage of pre-NAFTA steady state )
Variable

Cobb Douglas production
Canada Mexico
USA
ROW

Near leontief preferences
Canada Mexico
USA
ROW

Welfare effects
Steady state gain
Transitional cost
Net effect

0.04
0.01
0.04

-0.08
-0.06
-0.02

0.03
0.01
0.02

-0.01
-0.01
-0.00

0.04
0.01
0.04

-0.08
-0.06
-0.02

0.03
0.01
0.02

-0.01
-0.01
-0.00

Real GDP
Real consumption

-0.05
-0.01

0.05
-0.09

-0.08
-0.05

-0.00
-0.02

-0.05
-0.01

0.05
-0.09

-0.08
-0.05

-0.00
-0.02

Labor hours
Real wage
Capital stock
Real rental rate

-0.07
-0.03
-0.03
-0.04

-0.02
-0.10
0.10
0.02

-0.08
-0.06
-0.10
-0.04

-0.01
-0.02
0.01
-0.04

-0.07
-0.03
-0.03
-0.04

-0.02
-0.10
0.10
0.02

-0.08
-0.06
-0.10
-0.04

-0.01
-0.02
0.01
-0.04

Total imports

0.10

1.12

0.24

0.05

0.10

1.12

0.24

0.05

Exports to World
to Canada
to Mexico
to US
to ROW

-0.02

1.71
1.09

1.71
1.09

0.10
0.12
1.23

1.47
2.42

0.17
0.03
0.96
0.14

-0.02

0.96
0.05
-0.26

0.10
0.12
1.23

0.17
0.03
0.96
0.14

-0.03

Terms of trade
Net foreign assets/GDP

0.13
-0.03

-0.24
-0.84

0.02
0.19

Primary
Output
Labor hours
Capital stock
Exports

0.38
-0.02
1.19
0.85

2.03
-0.03
-0.10
4.18

Nondurable mfg.
Output
Labor hours
Capital stock
Exports

0.01
-0.10
-0.14
-0.03

Durable mfg.
Output
Labor hours
Capital stock
Exports

Aggregate effects

0.96
0.05
-0.26

1.47
2.42

-0.03

-0.03
-0.06

0.13
-0.03

-0.24
-0.84

0.02
0.19

-0.03
-0.06

0.75
-0.01
1.90
-2.22

0.24
0.01
0.77
2.91

0.38
-0.02
1.19
0.85

2.03
-0.03
-0.10
4.18

0.75
-0.01
1.90
-2.22

0.24
0.01
0.77
2.91

1.94
1.62
1.39
0.80

0.14
-0.37
-0.41
0.15

-0.04
-0.05
-0.05
0.13

0.01
-0.10
-0.14
-0.03

1.94
1.62
1.39
0.80

0.14
-0.37
-0.41
0.15

-0.04
-0.05
-0.05
0.13

-0.19
-0.29
-0.31
-0.18

1.43
0.38
0.27
0.36

0.22
0.05
-0.03
0.20

-0.04
-0.04
-0.04
-0.15

-0.19
-0.29
-0.31
-0.18

1.43
0.38
0.27
0.36

0.22
0.05
-0.03
0.20

-0.04
-0.04
-0.04
-0.15

Construction
Output
Labor hours
Capital stock
Exports

-0.02
-0.09
-0.13

0.13
-1.49
-1.44

-0.03
-0.17
-0.22

0.00
-0.00
-0.01

-0.02
-0.09
-0.13

0.13
-1.49
-1.44

-0.03
-0.17
-0.22

0.00
-0.00
-0.01

Services
Output
Labor hours
Capital stock
Exports

0.00
-0.00
-0.05

0.21
0.07
-0.02

-0.01
-0.07
-0.13

-0.00
-0.00
-0.01

0.00
-0.00
-0.05

0.21
0.07
-0.02

-0.01
-0.07
-0.13

-0.00
-0.00
-0.01

Sectoral effects

Figure1
Model flow diagram for a representative country
Household
utility

Aggregate
consumption

Nondurable
consumption

i=1,2,5

Leisure

Durable
consumption

Household time
endowment

Labor
effort

Land
endowment

Land

i=3,4,5

i=3,4,5

Government
spending

i=1,2,3,4,5

Production
capital

Aggregate expenditure
i=1 ,2

i=1,2,3,5

Domestic
production

Intermediate
inputs

i=1,2,3,4,5

Imports

,3,4 ,5

i=1,2,3

Foreign
exports

i=1,2,3,4,5

i=1,2,3

Domestic
exports

Notes: i denotes industry—primary, i=1; nondurable manufacturing, i=2; durable manufacturing, i=3; construction, i=4; services, i=5.

Figure 2
Aggregate Effects of NAFTA on Canadian Economy
Gross domestic product

Consumption

percentage deviation from steady state

percentage deviation from steady state

0.2

0.1

0.15

0.08

0.1
0.06

0.05
0.04

0
0.02

-0.05
0

-0.1

-0.02
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

-0.15
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Labor hours

Total Investment

percentage deviation from steady state

percentage deviation from steady state

0.4

0.12

0.1

0.2

0.08

0

0.06

-0.2

0.04

-0.4

0.02
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

-0.6
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Exports

Imports

percentage deviation from steady state

percentage deviation from steady state

0.7

0.8

0.6

0.6

0.5

0.4

0.4

0.2

0.3

0

0.2

-0.2

0.1

-0.4

0
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

-0.6
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Net exports/GDP

Terms of trade

percentage deviation from steady state

0.2

percentage deviation from steady state

0

0.15

000001

0.1

-0.1

0.05

-0.15

0

-0.2

-0.05

-0.25

-0.1
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

-0.3
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Figure 3
Aggregate Effects of NAFTA on Mexican Economy
Gross domestic product

Consumption

percentage deviation from steady state

percentage deviation from steady state

4

4

3.5
3

3
2

2.5
2

1

1.5
0

1
-1
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

0.5
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Labor hours

Total Investment

percentage deviation from steady state

percentage deviation from steady state

7

1.5

6
1

5
0.5

4
3

0

2
-0.5

1

-1
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

0
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Exports

Imports

percentage deviation from steady state

percentage deviation from steady state

30

35
30

25

25

20
20

15

15
10

10

5

5

0
-5
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

0
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Net exports/GDP

Terms of trade

percentage deviation from steady state

1

percentage deviation from steady state

2.2
2

0.5

1.8
1.6

0

1.4
1.2

-0.5

1
0.8

-1
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

0.6
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Figure 4
Aggregate Effects of NAFTA on U.S. Economy
Gross domestic product

Consumption

percentage deviation from steady state

percentage deviation from steady state

0.4

0.25

0.35
0.2

0.3
0.15

0.25
0.2

0.1

0.15

0.05

0.1
0

0.05

-0.05
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

0
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Labor hours

Total Investment

percentage deviation from steady state

percentage deviation from steady state

0.5

0.15

0.1

0.4

0.05

0.3

0

0.2

-0.05

0.1

-0.1
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

0
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Exports

Imports

percentage deviation from steady state

percentage deviation from steady state

3.5

4

3
3

2.5
2

2
1.5

1

1
0

0.5
-1
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

0
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Net exports/GDP

Terms of trade

percentage deviation from steady state

0.04

percentage deviation from steady state

0.15
0.1

0.02

0.05
0

-0.02

0
-0.05
-0.1

-0.04

-0.15
-0.06
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

-0.2
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Figure 5
Effects of NAFTA on Canadian Economy
Output

Consumption

percentage deviation from steady state

percentage deviation from steady state

1.5

0.6
0.4

1

0.2
0

0.5
-0.2
-0.4

0

-0.6
-0.8
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022
Total

Nondurable mfg.

Primary

Durable mfg.

-0.5
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Construction

Total

Nondurable total

Primary

Services

Nondurable mfg.

Services

Durable Services

Labor hours

Capital input

percentage deviation from steady state

percentage deviation from steady state

1

0.6

0.5

0.4

0
0.2
-0.5
0

-1

-0.2

-1.5

-0.4
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022
Total

Nondurable mfg.

Primary

Durable mfg.

-2
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Construction

Total

Primary

Nondurable mfg.

Services

Durable mfg.

Construction

Services

Exports by good

Exports by country

percentage deviation from steady state

percentage deviation from steady state

30

1

25
0.5
20
0

15
10

-0.5

5
-1

0

-1.5
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022
Total

Primary

Nondurable mfg.

Durable mfg.

-5
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022
Total

Mexico

U.S.

ROW

Figure 6
Effects of NAFTA on Mexican Economy
Output

Consumption

percentage deviation from steady state

percentage deviation from steady state

8

7

6

6
5

4

4

2

3
0
2
-2

1

-4
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

0
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Total

Primary

Nondurable mfg.

Total

Nondurable total

Primary

Durable mfg.

Construction

Services

Nondurable mfg.

Services

Durable Services

Labor hours

Capital input

percentage deviation from steady state

percentage deviation from steady state

6

10
8

4

6
2

4

0

2
0

-2
-2
-4
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

-4
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Total

Primary

Nondurable mfg.

Total

Primary

Nondurable mfg.

Durable mfg.

Construction

Services

Durable mfg.

Construction

Services

Exports by good

Exports by country

percentage deviation from steady state

percentage deviation from steady state

50

80

40

60

30
40
20
20
10
0

0
-10
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022
Total

Primary

Nondurable mfg.

Durable mfg.

-20
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022
Total

Canada

U.S.

ROW

Figure 7
Effects of NAFTA on U.S. Economy
Output

Consumption

percentage deviation from steady state

percentage deviation from steady state

1

5

0.5

4

0

3

-0.5

2

-1

1

-1.5
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

0
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Total

Primary

Nondurable mfg.

Total

Nondurable total

Primary

Durable mfg.

Construction

Services

Nondurable mfg.

Services

Durable Services

Labor hours

Capital input

percentage deviation from steady state

percentage deviation from steady state

0.8

2

0.6

1

0.4
0
0.2
-1
0
-2

-0.2
-0.4
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

-3
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Total

Primary

Nondurable mfg.

Total

Primary

Nondurable mfg.

Durable mfg.

Construction

Services

Durable mfg.

Construction

Services

Exports by good

Exports by country

percentage deviation from steady state

percentage deviation from steady state

12

50

10

40

8

30

6
20
4
10

2

0

0
-2
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022
Total

Primary

Nondurable mfg.

Durable mfg.

-10
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022
Total

Canada

Mexico

ROW

Figure 8
Aggregate effects of trade liberalization on Canadian Economy
Gross domestic product

Consumption

percentage deviation from steady state

0.14

percentage deviation from steady state

0.2

0.12

0.15

0.1

0.1

0.08

0.05
0.06
10 year liberalization

0

0.04
100% liberalization Jan 1993

0.02
15 year liberalization

0
-0.02
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

-0.05
-0.1
-0.15
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Labor hours

Total Investment

percentage deviation from steady state

percentage deviation from steady state

0.4

0.2

0.2
0.15

0
0.1

-0.2
0.05

-0.4

0
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

-0.6
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Exports

Imports

percentage deviation from steady state

percentage deviation from steady state

1.2

0.8

1

0.6
0.4

0.8

0.2
0.6

0
0.4

-0.2
0.2

-0.4
0
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

-0.6
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Net exports/GDP

Terms of trade

percentage deviation from steady state

0.2
0.15

percentage deviation from steady state

0

-0.1

0.1

-0.2
0.05

-0.3
0
-0.05
-0.1
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

-0.4

-0.5
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Figure 9
Aggregate effects of trade liberalization on Mexican Economy
Gross domestic product

Consumption

percentage deviation from steady state

percentage deviation from steady state

4

5

3

4
10 year liberalization

2

3

100% liberalization Jan 1993

2

1
15 year liberalization

1

0

0
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

-1
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Labor hours

Total Investment

percentage deviation from steady state

percentage deviation from steady state

2

10

1.5

8

1

6
0.5

4
0

2
-0.5
-1
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

0
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Exports

Imports

percentage deviation from steady state

percentage deviation from steady state

35

35

30

30

25

25

20

20

15

15
10

10

5

5

0
-5
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

0
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Net exports/GDP

Terms of trade

percentage deviation from steady state

1

percentage deviation from steady state

4
3.5

0.5

3
0

-0.5

2.5
2
1.5

-1

1
-1.5
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

0.5
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Figure 10
Aggregate effects of trade liberalization on U.S. Economy
Gross domestic product

Consumption

percentage deviation from steady state

percentage deviation from steady state

0.4

0.25
0.2

0.3
0.15

10 year liberalization

0.1

100% liberalization Jan 1993

0.2

15 year liberalization

0.05

0.1
0
-0.05
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

0
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Labor hours

Total Investment

percentage deviation from steady state

percentage deviation from steady state

0.6

0.2

0.5
0.15

0.4
0.1

0.3
0.05

0.2
0

0.1

-0.05

0

-0.1
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

-0.1
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Exports

Imports

percentage deviation from steady state

percentage deviation from steady state

4

4

3.5
3

3
2.5

2

2
1

1.5
1

0

0.5
-1
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

0
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

Net exports/GDP

Terms of trade

percentage deviation from steady state

0.04

percentage deviation from steady state

0.15
0.1

0.02

0.05
0

-0.02

0
-0.05
-0.1

-0.04

-0.15
-0.06
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022

-0.2
1993 1996 1999 2002 2006 2009 2012 2015 2019 2022
Full text of Working Papers (Federal Reserve Bank of Chicago) : Dynamic Trade Liberalization Analysis : Steady State, Transitional and Inter-Industry Effects, Working Paper 1998-15

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