The 1988 Canada-United States Free Trade Agreement: A Dynamic General Equilibrium Evaluation of the Transition Effects

Richard G. Harris and Victoria Kwakwa

No 275215, Queen's Institute for Economic Research Discussion Papers from Queen's University - Department of Economics

Abstract: Canada and the United States have implemented legislation to form a free trade area in the classic sense. The Canada America Free Trade Agreement, or CAFTA, is to be phased in over a ten year period which began on January 1, 1989. There are many elements to the agreement, but the most significant is the phased in reduction of tariffs on bilateral trade over a ten year period, plus removal of some significant non-tariff barriers. In addition the agreement sets out a new mechanism for resolving trade disputes involving the application of countervail and anti-dumping laws in both countries. This paper reports some estimates of the transition effect of the agreement using a sequenced general equilibrium model incorporating imperfect competition, scale economies and some labour market rigidities. Entry and exit dynamics are explicitly incorporated in the model simulations. Besides offering what we think are illuminating analyses of the agreement itself, the results in comparison to the static general equilibrium estimates offer support for the view that it is important in applied policy analysis to pay attention to adjustment and dynamics.

Keywords: Financial Economics; International Relations/Trade (search for similar items in EconPapers)
Pages: 60
Date: 1989-05
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Persistent link: https://EconPapers.repec.org/RePEc:ags:queddp:275215

DOI: 10.22004/ag.econ.275215

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