TY  - JOUR
AU  - Caliendo,Lorenzo
AU  - Parro,Fernando
TI  - Estimates of the Trade and Welfare Effects of NAFTA
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18508
PY  - 2012
Y2  - November 2012
UR  - http://www.nber.org/papers/w18508
L1  - http://www.nber.org/papers/w18508.pdf
N1  - Author contact info:
Lorenzo Caliendo
Yale University
School of Management
135 Prospect Street
New Haven, CT 06520
Tel: 203/432-4069
E-Mail: lorenzo.caliendo@yale.edu

Fernando Parro
Federal Reserve Board
20th street and Constitution Avenue NW
Washington D.C., 20551
E-Mail: fernando.j.parro@frb.gov
AB  - We build into a Ricardian model sectoral linkages and differing productivity levels across sectors to understand how the gains from tariff reductions in a given sector spread to the rest of the economy. We also propose a new method to estimate sectoral trade elasticities consistent with any trade model that delivers a gravity trade equation. We apply our model and use our estimated elasticities to identify the impact of NAFTA's tariff reductions on exports and imports of all members. We find that the trade and welfare effects of tariff reductions are reduced by more than 40% when the structure of production does not take into account intermediate goods in production and input-output linkages. We then decompose the effects of tariff changes for NAFTA members and find that 93% of Mexico's, 58% of Canada's and 55% of the United States' trade effects due to tariff reductions can be attributed to NAFTA's tariff reductions.
ER  -