WHO IS BENEFITING THE MOST FROM NAFTA? AN INTERVENTION TIME SERIES ANALYSIS

Abstract

Unlike previous studies on the North American Free Trade Agreement (NAFTA), which examined either trade or income effects by using forecasted trade values, this paper investigates the impact of NAFTA on both bilateral trade and income of each member country - US, Canada, and Mexico - by using historical data. This paper covers time series data before and after NAFTA was formed, from 1980 to 1999. We consider NAFTA as a prolonged impulse function in international trade activities among the three trading partners by employing an intervention-function model. Findings reveal that NAFTA increases bilateral trade between US-Canada and US-Mexico, and in terms of income, NAFTA benefits Canada the most ¡°certainly¡±. To substantiate these findings, Granger causality analysis is employed, which in turn supports our intervention-function results.NAFTA, Intervention-function Model, Time Series Analysis, Granger Causality