Trade Creation and Trade Diversion under NAFTA
Stanford King Center on Global Development Working Paper
Aggregate and more micro data on trade between the US, Canada, and Mexico are used to assess the early effects of Mexican entry into NAFTA. Although the shares of Mexican trade with the US and Canada have risen noticeably, several factors have contributed to this outcome. Mexico's reduction of tariffs and quantitative restrictions, and its alteration of exchange rate policy at the end of 1994 both were important. Based on early results, the impact of NAFTA over its first three years appears modest compared with the effects of other policy changes.