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LESSON 1: TRADE IN COLONIAL AMERICA/NAFTA
ECONnections
Listen to the interview with an expert, Lacey Gallagher, Director of Latin American ratings, Standard and Poor's/DRI - a McGraw-Hill Company. Select your bandwidth from the list below. You will need RealPlayer 6.0 or later in order to listen to this audio interview:
Do you have any questions for Ms. Gallagher? Fill out the question form below and press 'Submit question.' Your question and Ms. Gallagher's response will be posted on this page.
Questions
that others have asked:
Q: In trade between the US and Mexico, what goods and/or services
does Mexico have an absolute and/or comparative advantage over the US
and visa versa?
A: Theory would
suggest that if the U.S. and Mexico don't have any trade restrictions,
for any good imported into the United States, Mexico
would have a comparative advantage. And for goods exported from the
U.S. to Mexico, the United States would have a comparative advantage.
There are many goods in the U.S. for which the U.S. has an absolute
advantage, even though Mexico might have a comparative advantage.
We don't believe that
there is any agency that collects data on which
countries have comparative or absolute advantage in the production of
goods. These goods would change over time.
Q: Has NAFTA
been successful?
A: Most economists remain supportive of NAFTA. In my view, this
is primarily based on a general view that free trade is good (using comparative
advantage arguments going back to David Ricardo), rather than a detailed
study of the effects of NAFTA in particular. Studying the effects of any
single policy change is hard, because many other things are happening
at the same time. In no sense is NAFTA a controlled experiment: Not everything
that happened to the US, Canadian, or Mexican economies after NAFTA can
be viewed as an effect of NAFTA.
One study that did try is sort out the various effects is "Trade Creation
and Trade Diversion Under NAFTA" by Anne O. Krueger (available as NBER
Working Paper No. 7429, December 1999). Here is the abstract of her study:
"Aggregate and more micro data on trade between the U.S., Canada, and Mexico are used to attempt to assess the early effects of Mexican entry into NAFTA. Although the fraction of Mexican trade with the U.S. and Canada has risen sharply, a number of factors have contributed to this result. Mexican reduction of tariffs and quantitative restrictions and the Mexican alteration of exchange rate policy at the end of l994 were both important. Based on early returns, the impact of NAFTA over its first three years does not appear to have been large relative to the effects of these other events."
I should note that since this study was written, Anne Krueger has gone on to a top position at the IMF.
Greg Mankiw
Chief Economist, NCEE
