Measurements of Agricultural Productivity and Efficiency Gains from NAFTA

Abstract

The primary objective of this study is to empirically determine whether North American Free Trade Agreement (NAFTA) has contributed to increased agricultural productivity in any of its member countries. Implementation of the NAFTA began on January 1, 1994. This agreement removed most barriers to trade and investment among the United States, Canada, and Mexico, in which all non-tariff barriers to agricultural trade between these countries were eliminated. Data Envelopment Analysis (DEA) and the Malmquist Productivity Index were used to estimate the total factor productivity change, technical change, and efficiency change of agricultural production for each NAFTA country. Then, using time series data, the efficiency changes in countries were compared to determine whether NAFTA has been beneficial to the agricultural sector of a member country. , Total factor productivity, technical change, and efficiency change of agricultural production in NAFTA countries were analyzed for the period 1980-2007, and then a comparison between pre- and post-NAFTA periods was also made. In the analysis, aggregate agricultural production was used as the output, and five variables were considered as the inputs, which included: land, labor, capital, fertilizer and livestock. The results revealed that the average annual total factor productivity increased by 1.6 percent during the 1980-2007 period for NAFTA countries, mainly coming from technical change. Total factor productivity did not change obviously during the pre-NAFTA period. In contrast, it increased by 2.7 percent due to technical improvements in post-NAFTA period. Consequently, it is noticeable that compared to the pre-NAFTA period, the countries especially Mexico performed better by achieving higher levels of productivity in agricultural production.Agricultural Efficiency, Data Envelopment Analysis, Malmquist Index, NAFTA, Total Factor Productivity, International Relations/Trade,