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A Global Perspective on Regional Integration in North America

A Global Perspective on Regional Integration in North America. Thomas W. Hertel Director Center for Global Trade Analysis Purdue University. Outline. Comment on ERS trade flows study Outline determinants of regional trade flows Isolate those likely influenced by NAFTA

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A Global Perspective on Regional Integration in North America

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  1. A Global Perspective on Regional Integration in North America Thomas W. Hertel Director Center for Global Trade Analysis Purdue University

  2. Outline • Comment on ERS trade flows study • Outline determinants of regional trade flows • Isolate those likely influenced by NAFTA • Propose alternative measure of regional integration • Compare across countries and sectors • Summary and report card

  3. ERS Trade Flow Study • Gehlhar’s work is critical input: IBAT • Growth in bilateral agr flows accelerated, but doesn’t coincide with FTA’s: • US-CN since mid-80’s • CN-US early 90’s • MX-US from mid-80’s • Importance of macro-forces: • Mexican recession in 1995 • Asian financial crisis • How to disentangle these different factors?

  4. Determinants of Trade Shares xshrcr = gdpshrr * opennessr * compositioncr* transcostcr Share of country c’s exports to region r depends on: - relative size of region r’s market - openness of r, relative to world - composition of c’s exports vs. r’s imports - relative transactions costs of exporting from c to r NAFTA is most likely to affect transactions costs.

  5. Determinants of Trade Shares I will look at the combination of the last two terms: xshrcr = gdpshrr * opennessr * Icr where Icr = compositioncr* transcostcr = intensity of exports from c to r. Canceling out GDP and dividing: Icr = xshrcr / mshrr where mshrr = share of region r in world imports, net of c Logic: Compare c’s propensity to export to r with the rest of the world’s exports to r. If no geographic bias, then this will equal one. Regional agreements aim to boost this index.

  6. An example • Consider the case of Mexican manufactured food exports to NAFTA • Export share has fallen from 90% in 1965 to 70% in 1995 • However, NAFTA’s share of world imports of food products (net of Mexico) has also declined • Export intensity has actually risen! • Global perspective is key

  7. 1 0.9 0.8 0.7 0.6 Share export shr 0.5 wld imp shr 0.4 0.3 0.2 0.1 0 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 Year NAFTA shr of Mexican mnfc food exports has been falling... Figure 1. Determinants of Mexican export intensity to NAFTA: Manufactured food products

  8. 8 7 6 5 Index Index 4 3 2 1 0 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 Year But her export intensity to NAFTA has been rising! Figure 2. Mexican export intensity to NAFTA: Manufactured food products

  9. 6 5 4 farm Index 3 food mnfcs 2 1 0 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 Year Strong growth in intra-NAFTA export intensity for agr/food prdts Figure 3. NAFTA's intra-regional export intensity by sector

  10. 6 5 4 Canada Index 3 Mexico USA 2 1 0 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 Years NAFTA export intensities very similar across three countries Figure 4. NAFTA export intenstity by country all merchandise trade

  11. 7 6 5 4 Canada Index Mexico USA 3 2 1 0 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 Year Remarkably little evidence of increased export intensity for mnfcs Figure 5. NAFTA export intensity for non-food manufactures, by country

  12. 9 8 7 6 5 Canada Index Mexico USA 4 3 2 1 0 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 Year Strong growth for mnfc food -- especially Canadian exports Figure 6. NAFTA export intensity for food products: by country

  13. 10 9 8 7 6 Canada Index 5 Mexico USA 4 3 2 1 0 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 Year For farm products, Mexico is the success story Figure 7. NAFTA export intensities for farm products, by country

  14. Conclusions • Trade shares offer flawed measure of integration due to country size and openness • Comparison to world imports changes view of integration (e.g., Mexican food exports) • Intensity of trade in farm and food products low in 1960’s and 70’s. Sharp rise from mid-80’s, now exceeds mnfcs! • FTA’s have surely contributed to this success in regional integration • Proof awaits more thorough analysis

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