North American Free Trade

North American Free Trade

The governments of Canada, Mexico, and the United States have recently concluded the negotiations of a North American Free Trade Agreement (NAFTA). This agreement creates a free trade area larger, in terms of both population and GDP, than the European Community. This paper summarizes the results of a number of static applied general equilibrium analyses of the impact of the NAFTA. The impact is expected to be favorable in all three countries but relatively small, particularly in Canada and the U.S., which already have their own free trade agreement. The paper suggests that the dynamic impact of the NAFTA, which takes into account the impact on capital flows and growth rates, will be substantially larger, especially in Mexico.