Trade Pattern and Economic Growth under NAFTA: A regional Study of U.S. Manufacturing Industries

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Ph.D Dissertation
Trade Pattern and Economic Growth under NAFTA: A regional Study of U.S. Manufacturing Industries
ABSTRACT
 
            International economic integration has spread into all regions of the world since World War II. Among other developments, the early 1990s have witnessed the creation of the North America Free Trade Agreement (NAFTA), the most comprehensive agreement that has ever been negotiated among regional trading partners. NAFTA represents an attempt by the United States, Canada, and Mexico to ensure the growth and competitiveness of their economies in a dramatically changing world. However, it coincides with heightened concern on the part of individual U.S. states for their own places in the global arena of international trade. 
            This dissertation investigates the importance of economic and geographical factors in explaining the trade flow of U.S. states with NAFTA partners (Canada and Mexico) using the gravity model. Three gravity models have been estimated for trade flows between U.S. states and Canada and Mexico. The models are estimated for manufacturing industries at the two-digit SIC level using Seemingly Unrelated Regression (SUR).
            The empirical results demonstrate that the gravity equation is an appropriate tool for explaining the U.S. states trade patterns with NAFTA partners. U.S. states’ trade flows are most affected by the four major factors in this study: income, population, distance, and geographical location (adjacency).
            In addition, the dissertation examines the role of NAFTA’s trade on the growth of U.S. state economies using a modified version of the international trade shift-share model. The model is applied to state-NAFTA trade in manufacturing for the period 1987-1992, and the significant role of trade with NAFTA in U.S. state growth is identified. The analysis indicates that there are significant variations in the role of NAFTA trade in state economies which are more pronounced in the northern and southern border states.