The Economics and Politics of Revoking NAFTA
We provide a quantitative assessment of both the aggregate and the distributional effects of revoking NAFTA using a multi-country, multi-sector, multi-factor model of world production and trade with global input-output linkages. Revoking NAFTA would reduce US welfare by about 0.2%, and Canadian and Mexican welfare by about 2%. The distributional impacts of revoking NAFTA across workers in different sectors are an order of magnitude larger in all three countries, ranging from -2.7 to 2.26% in the United States. We combine the quantitative results with information on the geographic distribution of sectoral employment, and compute average real wage changes in each US congressional district, Mexican state, and Canadian province. We then examine the political correlates of the economic effects. Congressional district-level real wage changes are negatively correlated with the Trump vote share in 2016: districts that voted more for Trump would on average experience greater real wage reductions if NAFTA is revoked.
Preliminary version of a paper prepared for the 2018 IMF Jacques Polak Annual Research Conference and the IMF Economic Review. We are grateful to our discussant Kei-Mu Yi, Stijn Claessens and workshop participants at the BIS and the IMF ARC for helpful comments, and to Julieta Contreras for excellent research assistance. The views expressed in this study do not necessarily reflect those of the Bank for International Settlements. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Raphael A. Auer & Barthélémy Bonadio & Andrei A. Levchenko, 2020. "The Economics and Politics of Revoking NAFTA," IMF Economic Review, vol 68(1), pages 230-267. citation courtesy of