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Cited by 1,518Global trade and economicsCanadian Policy and GovernanceGlobal Trade and Competitiveness

Estimates of the Trade and Welfare Effects of NAFTA

Caliendo, L., Parro, F.·2015·The Review of Economic Studies
DOI 10.1093/restud/rdu035
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Abstract

We build into a Ricardian model sectoral linkages, trade in intermediate goods, and sectoral heterogeneity in production to quantify the trade and welfare effects from tariff changes. We also propose a new method to estimate sectoral trade elasticities consistent with any trade model that delivers a multiplicative gravity equation. We apply our model and use our estimated elasticities to identify the impact of NAFTA's tariff reductions. We find that Mexico's welfare increases by 1.31%, U.S.'s welfare increases by 0.08%, and Canada's welfare declines by 0.06%. We find that intra-bloc trade increases by 118% for Mexico, 11% for Canada, and 41% for the U.S. We show that welfare effects from tariff reductions are reduced when the structure of production does not take into account intermediate goods or input–output linkages. Our results highlight the importance of sectoral heterogeneity, intermediate goods, and sectoral linkages for the quantification of the welfare gains from tariffs reductions.

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Crossref · 10.1093/restud/rdu035

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  • Using Caliendo and Parro (2015) trade elasticity estimates leads to significantly larger gains from industrial policy, equal to 4.81% on average.

    “Using these parameter estimates leads, in turn, to significantly larger gains from industrial policy, equal to 4.81% on average.”

    From The Textbook Case for Industrial Policy: Theory Meets Data (2019) · cites this paper as Caliendo and Parro (2015)

    Section 4 and the trade-elasticity estimation passage show that Caliendo and Parro estimate sectoral trade elasticities. The paper's welfare results concern tariff reductions, not gains from industrial policy; our copy does not support the claimed 4.81% average or the assertion that those estimates produce it. (LLM, conf=0.85)

    Experimental — accuracy not yet measured

  • NAFTA produced minute net efficiency gains for the US economy.

    “recent research suggests NAFTA produced minute net efficiency gains for the US economy”

    From What Do Trade Agreements Really Do? (2018) · cites this paper as Caliendo and Parro (2015)

  • NAFTA increased US welfare by 0.08 percent.

    “They conclude that NAFTA increased US”

    From What Do Trade Agreements Really Do? (2018) · cites this paper as Caliendo and Parro (2015)

  • Half of NAFTA's US welfare gain came from an improvement in the US terms of trade at the expense of other countries, mainly Mexico.

    “Moreover half of this gain came not from an increase in efficiency but from an improvement in the US terms of trade (that is, at the expense of other countries, mainly Mexico).”

    From What Do Trade Agreements Really Do? (2018) · cites this paper as Caliendo and Parro (2015)

  • Truncating θ_k in Caliendo and Parro (2015) to values between 1.45 and 16.52 results in more modest gains from industrial policy, equal to 2.03% on average, closer to those obtained using the other three studies.

    “This results in more modest gains from industrial policy, equal to 2.03% on average, closer to those obtained using the other three studies.”

    From The Textbook Case for Industrial Policy: Theory Meets Data (2019) · cites this paper as Caliendo and Parro (2015)

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Cites

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Research works printed but not linked: 57

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Authors
Caliendo, L., & Parro, F.
Affiliations
  • National Bureau of Economic Research (US)
  • Federal Reserve Board of Governors (US)
Corresponding author
Caliendo, L.
ORCID
Caliendo, L.
Venue
The Review of Economic Studies
Publisher
Oxford University Press (OUP)
Published
2014-11-14
Volume
82
Issue
1
Pages
1-44
ISSN
  • 0034-6527 (ISSN-L)
  • 1467-937X
DOI
10.1093/restud/rdu035
OpenAlex
W3123246357
Cited by
1,518
References
3
Citations by year
2026: 132 · 2025: 163 · 2024: 165 · 2023: 159 · 2022: 139 · 2021: 136 · 2020: 133 · 2019: 165 · 2018: 93 · 2017: 70 · 2016: 58 · 2015: 47 · 2014: 20 · 2013: 15 · 2012: 8
FWCI
182.51
Type
journal article
Language
en
Open access
closed
Locations
  • The Review of Economic Studies (publishedVersion)
  • RePEc: Research Papers in Economics (submittedVersion)
Funders
  • Yale University
  • Raymond and Beverly Sackler Institute for Biological, Physical and Engineering Sciences, Yale University
Topics
  • Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Global trade and economics
  • Social Sciences › Political Science and International Relations › Canadian Policy and Governance
  • Social Sciences › Business, Management and Accounting › Strategy and Management › Global Trade and Competitiveness
Keywords
NAFTA, tariff reduction, welfare effects, sectoral linkages, intermediate goods trade, sectoral heterogeneity, trade elasticity, gravity model, intra-bloc trade, Ricardian model, input-output linkages, Mexico, United States, Canada

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