The global macroeconomics of NAFTA

Joyce Manchester*, Warwick J. Mckibbin

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

9 Citations (Scopus)

Abstract

Previous empirical studies of NAFTA have commonly used trade models that do not allow international capital flows to adjust to changes in regional trade arrangements such as NAFTA. This paper explores the dynamic implications of NAFTA with particular focus on the short-run and longer-run adjustment of financial capital. This adjustment affects the global allocation of physical capital and therefore changes the growth prospects for a country such as Mexico. Our results suggest that Mexico and the world economy gain more from NAFTA than merely a static reallocation of production possibilities. In the short run, the adjustment of financial capital affects nominal and real exchange rates. This adjustment is far more important for the short-term allocation of trade flows than partial equilibrium adjustment of trade based only on changes in long-term price differentials.

Original languageEnglish
Pages (from-to)203-223
Number of pages21
JournalOpen Economies Review
Volume6
Issue number3
DOIs
Publication statusPublished - Jul 1995

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