Chapda Nana, Guy and Gervais, Jean-Philippe and Larue, Bruno (2010): Regional Integration and Dynamic Adjustments: Evidence from a Gross National Product Function for Canada and the United States.
Download (578Kb) | Preview
We propose an empirical trade model to test for structural change and dynamic effects induced by free trade agreements for the Canadian and US economies. We estimated a translog Gross National Product (GNP) function along with output and factor shares and tested for structural change (abrupt or gradual) which is endogenously determined by the data. After this, we estimated Stolper-Samuelson (SS) and Rybcynski (R) elasticities, and assessed the stability of their sign and magnitude link to the structural change. The null hypothesis of no structural change is soundly rejected for both countries. For Canada, we found gradual structural change that started prior to the implementation of CUSTA and lasted for several years. In the US case, we found evidence of an abrupt structural change occurring in 1995, a year after NAFTA came into force. More interestingly, several SS and R elasticities experienced sign reversals and a magnification effect over the different sub-periods, implying that the categorization of goods in terms of friends or enemies of labour and capital changed during the transition.
|Item Type:||MPRA Paper|
|Original Title:||Regional Integration and Dynamic Adjustments: Evidence from a Gross National Product Function for Canada and the United States|
|Keywords:||GNP function; regional integration; structural change; smooth transition regression; dynamic adjustments.|
|Subjects:||F - International Economics > F1 - Trade > F15 - Economic Integration
C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models; Multiple Variables > C32 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
F - International Economics > F1 - Trade > F13 - Trade Policy; International Trade Organizations
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q1 - Agriculture > Q11 - Aggregate Supply and Demand Analysis; Prices
F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade
|Depositing User:||Guy Chapda Nana|
|Date Deposited:||20. Jun 2010 04:29|
|Last Modified:||11. Feb 2013 19:40|
Bacon, D.W. and D.G. Watts (1971): “Estimating the transition between two intersecting straight lines”, Biometrika, 58, 525-534.
Baier, S.L. and J. Bergstrand (2007): “Do Free Trade Agreements Actually Increase Members’ International Trade?”, Journal of International Economics, 71, 72-95.
Baldwin, R.E. and A. Venables (1995): “Regional Economic Integration”, Chap. 31 in Grossman, G.E. and K. Rogoff. Eds. Handbook of International Economics vol.3, Amsterdam, Elsevier Science.
Beaulieu, E. (2002): “Factor or Industry Cleavages in Trade Policy? An Empirical Analysis of the Stolper-Samuelson Theorem”, Economics and Politics, 14, 99-131.
Beaulieu, E. and C. Magee (2004): “Four Simple Tests of Campaign Contributions and Trade Policy Preferences,” Economics and Politics 16, 163 – 187.
Berndt, E. R. and N. E. Savin (1975): “Estimation and Hypothesis Testing in SingularEquation Systems with Autoregressive Disturbances”, Econometrica, 43, 937–957.
Camacho, M. (2004): "Vector smooth transition regression models for US GDP and the composite index of leading indicators", Journal of Forecasting, 23, 173-196.
Campbell, N. and N. Vousden (2000): “Import Competition and Worker Productivity in Unionized Firms”, Review of International Economics, 8, 193-207.
Carrère, C. (2006): “Revisiting the effects of regional trade agreements on trade flows with proper specification of the gravity model”, European Economic Review, 50, 223 – 247.
Corden, W.M. (1974): Trade Policy and Economic Welfare. Oxford, Oxford University Press.
Cox, D. and R.G. Harris (1985): “Trade Liberalization and Industrial Organization: Some Estimates for Canada”, Journal of Political Economy, 93, 115-145.
Diewert, E. and T.J. Wales (1987): “Flexible Functional Forms and Global Curvature Conditions”, Econometrica, 55, 43-68.
Escribano, A. and O. Jorda. (1999): “Improved testing and speciﬁcation of smooth transition regression models”, in P. Rothman (editor), Nonlinear Time Series Analysis of Economic and Financial Data, Boston: Kluwer Academic Press, 289–319.
Feenstra, R. C. (2004): Advance International Trade: Theory and Evidence, Princeton University Press.
Feng, G. and A. Serletis (2008): “Productivity trends in U.S. manufacturing: Evidence from the NQ and AIM cost functions”, Journal of Econometrics, 142, 281-311.
Freund, C. L. and J. McLaren (1999): “On the dynamic of trade diversion : evidence from four trade blocs”, International Finance Discussion Papers 637, Board of Governors of the Federal Reserve System (U.S.).
Goodwin, B. K., D. Harper. and R. Schnepf (2003): "Short-run demand relationships in the U.S. fats and oils complex", Journal of Agricultural and Applied Economics, 35, 171-84.
Gould, D. M. (1998): “Has NAFTA Changed North American Trade?” Federal Reserve Bank of Dallas, Economic Review, First Quarter, pp. 12-23.
Gu, W., G. Sawchuk and L. Rennison. (2003): "The effect of tariff reductions on firm size and firm turnover in canadian manufacturing," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 139, 440-459
Hansen, B.E. (1996): “Inference when a nuisance parameter is not identiﬁed under the null hypothesis”, Econometrica, 64, 413–430.
Harrigan, J. (1997): “Technology, Factor Supplies, and International Specialization: Estimating the Neoclassical Model”, American Economic Review, 87, 475-494.
Harris, R.G. (1984): “Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition”, American Economic Review, 74, 1016-1032.
Head, K. and J. Ries. (1999): “Rationalization Effects of Tariff Reductions.” Journal of International Economics, 47, 295-320.
Holt, M. T. and J. V. Balagtas (2009): “Estimating Structural Change with Smooth Transition Regressions: an Application to Meat Demand”. American Journal of Agricultural Economics, 91, 1424 – 1431.
International Monetary Fund, International Financial Statistics : World and Country Notes, November 2006.
Jones, R. and J. Schienkman. (1977): “The relevance of the two-sector production model in trade theory”, Journal of Political Economy, 85, 909-935.
Kee, H. L., A. Nicita and M. Olarreaga. (2008): "Import Demand Elasticities and Trade Distortions", Review of Economics and Statistics, 90, 666-682.
Kohli, U. (1978): “A gross national product function and the derived demand for imports and supply for exports”, Canadian Journal of Economics, 11, 167-182.
(1982): "Production Theory, Technological Change, and the Demand for Imports: Switzerland. 1948-1976", European Economic Review, 369-86.
(1983): “The Le Chatelier Principle and the Demand for Imports in the Short Run and the Medium Run: Australia, 1959/60-1978/79”, The Economic Record, 59, 149-65.
(1990): “Price and Quantity Elasticities in U.S. Foreign Trade”, Economics Letters, 33, 277-81.
(1991): Technology, Duality, and Foreign Trade: The GNP Function Approach to Modeling Imports and Exports, Ann Arbor, MI: University of Michigan Press.
(1993): “A Symmetric Normalized Quadratic GNP Function and the U.S. Demand for Imports and Supply of Exports”, International Economic Review, 34, 243-55.
(1994): “Technological Biases in U.S. Aggregate Production”, Journal of Productivity Analysis, 5, 5-22 .
(2003): "GDP Growth Accounting: A National Income Function Approach", Review of Income and Wealth, 49, 23-34.
(2004): “Real GDP, Real Domestic Income and Terms of Trade Changes”, Journal of International Economics, 62, 83-106.
Kohli, U. and A. Werner (1998): “Accounting for South Korean GDP Growth: Index Number and Econometric Estimates”. Pacific Economic Review, 3, 133-152.
Konno, T. and F. Mototsugu (2002): “The Canada-United States bilateral import demand functions: gradual switching in long-run relationships”, Applied Economics Letter, 9, 567-570.
Konno, T. and F. Mototsugu (2003): “Did NAFTA cause the structural changes in bilateral import functions between the US and Mexico?”, Journal of Policy Modeling, 25, 53-59.
Krinsky, I. and A. L. Robb (1986): "On Approximating the Statistical Properties of Elasticities", The Review of Economics and Statistics, 68(4), 715-19.
Krishna, K. and A. Panagariya (2002): “On Necessarily Welfare-Enhancing Free Trade Areas”, Journal of International Economics, 57, 353-67.
Lawrence, D. A. (1989):“An Aggregator Model of Canadian Export Supply and Import Demand Responsiveness”, Canadian Journal of Economics, 22, 503–21.
Leamer, E. E. (2001): “In Search of Stolper-Samuelson Linkages between International Trade and Lower Wages”. In L Leamer, E.E. Ed. International Economics-Worth Series in Outstanding Contributions, New York, Worth Publishers.
Lipsey, R. G. (1957): “The Theory of Customs Unions: Trade Diversion and Welfare”, Economica, 24, pp. 40-46.
Luukkonen, R., P. Saikkonen. and T. Teräsvirta. (1988): "Testing linearity against smooth transition autoregressive models", Biometrika, 75, 491–99.
Magee, C. (2008): "New measures of trade creation and trade diversion", Journal of International Economics, 75, 349-62.
McElroy, M. B. (1977): “Goodness of fit for the seemingly unrelated regressions: Glahn’s R2y.x and Hooper’s r2”, Journal of econometrics, 6, 381-397.
Moschini, G. and K. D. Meilke (1989): "Modeling the Pattern of Structural Change in U.S. Meat Demand", American Journal of Agricultural Economics, 71, 253-61.
Ohtani, K. and S. Katayama (1985): “An alternative gradual switching regression model and its application”, Economic Studies Quarterly, 36, 148-153.
Pesaran, H. and Y. Shin (2002): “Long run structural modelling”, Econometrics Reviews, 21, 49-87.
Qu, Z. and P. Perron (2007): "Estimating and testing structural changes in multivariate regressions", Econometrica, 75, 459–502.
Ryan, D. L. and T. J. Wales (2000): “Imposing Local Concavity in the Translog and Generalized Leontief Cost Functions”, Economics Letters, 67, 253-260.
Ryan, D. L. and Wales, T. J., (1998): “A simple method for imposing local curvature in some flexible consumer demand systems”, Journal of Business and Economic Statistics, 16, 331–338.
Romalis, J. (2007): "NAFTA’s and CUSTFA’s Impact on International Trade", Review of Economics and Statistics, 89, 416-435.
Scheve, K. F. and M. C. Slaughter (2001): “What Determines Individual Trade Policy Preferences?”, Journal of International Economics, 54, 267-292.
Sharma, S. C. (2002): “The Morishima Elasticity of Substitution for the Variable Profit Function and the Demand for Imports in the U.S.”, International Economic Review, 43, 115-135.
Sjostrom, T. and M. Weitzman (1996): “Competition and the Evolution of Efficiency”, Journal of Economic Behaviour and Organization, 30, 25-43.
Syropoulos, C. (2002): “Optimum Tariffs and Retaliation Revisited: How Country Size Matters”, Review of Economic Studies, 69, 707-727.
Trefler, D. (2004): “The Long and Short of the Canada-U.S. Free Trade Agreement”. American Economic Review, 94, 870-895.
Tsurumi, H. (1980): “A Bayesian estimation of structural shifts by gradual switching regressions with an application to the U.S gasoline market. in Bayesian Analysis in Econometrics and Statistics: Essays in Honor of Harold Jeffreys.” A. Zellner (ed.). North Holland. Amsterdam, 212-240.
Tsurumi, H., H. Wago. and P. Ilmakunnas (1986): "Gradual switching multivariate regression models with stochastic cross-equational constraints and an application to the KLEM translog production model", Journal of econometrics, 31, 235-53.
Tybout, J. R. (2003): “Plant-and Firm-Level Evidence on “New” Trade Theories”. Chap. 13 in Choi, K. and J. Harrigan Eds. Handbook of International Trade, Oxford, Blackwell Publishing Ltd.
Tybout, J. R., J. de Melo, and V. Corbo (1991): “The Effects of Trade Reforms on Scale and Technical Efficiency”, Journal of International Economics, 31, 231-250.
Van Dijk, D., Terasvirta. T. and P.H. Franses (2002): "Smooth transition autoregressive models- a survey of recent developments." Econometrics Review, 21, 1-47.
Wong, K.-Y. (1995): International Trade in Goods and Factor Mobility. Cambridge, The MIT Press.