Effects of North American Free Trade Agreement on the US Labor Market: An ARDL Bounds Testing Approach

Ozturk, Mustafa and Aras, Osman Nuri (2020): Effects of North American Free Trade Agreement on the US Labor Market: An ARDL Bounds Testing Approach. Published in: Journal of Management, Economics, and Industrial Organization , Vol. 4, No. 1 (2020): pp. 100-113.

Abstract

One of the political debates on negative effects of the economic integration between the USA and the other members of the North American Free Trade Agreement (NAFTA) Canada and Mexico is the rise of unemployment. This study aims to identify whether this thesis is true or not. For that the relations between the statistical variables employment, export, import, wages and gross domestic product were estimated through Autoregressive Distributive Lag model (ARDL). Empirical findings show that the import from the NAFTA countries has negative effect on the employment in the long run while its effect on the employment is positive in the short run. However, both the short run and the long run effects are so small that the negative effect is negligible comparing to the benefits of the economic integration.

• Item Type: MPRA Paper
• Language: English
• Keywords: North America Free Trade Agreement (NAFTA), employment, trade, Autoregressive Distributive Lag model (ARDL).
• Subjects: F - International Economics > F2 - International Factor Movements and International Business; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F42 - International Policy Coordination and Transmission; F - International Economics > F5 - International Relations, National Security, and International Political Economy > F55 - International Institutional Arrangements

References

Autor, D. H., Dorn, D., & Hanson, G. H. (2016). The china shock: Learning from labor-market adjustment to large changes in trade. Annual Review of Economics, 8, 205-240. https://www.nber.org/papers/w21906.pdf

Burfisher, M. E., Robinson, S., & Thierfelder, K. (2001). The impact of NAFTA on the United States. Journal of Economic perspectives, 15(1), 125-144. http://www2.hawaii.edu/~noy/362texts/NAFTA-US.pdf

De La Cruz, J., & Riker, D. (2014). The Impact of NAFTA on US Labor Markets. US Internat. Trade Commission, Office of Economics. https://www.usitc.gov/publications/332/ec201406a.pdf

Dziczek, K., Swiecki, B., Chen, Y., Brugeman, V., Schultz, M., & Andrea, D. (2017). NAFTA briefing: Trade benefits to the automotive industry and potential consequences of withdrawal from the agreement. Center for Automotive Research, Ann Arbor, MI. http://www.cargroup.org/wp-content/uploads/2017/01/nafta_briefing_january_2017_public_version-final.pdf

Eduardo, J., Cota, M. (2016). US manufacturing imports from China and employment in the Mexican manufacturing sector. Cuadernos de Economía, 35(69), 583-613. http://www.redalyc.org/pdf/2821/282144830002.pdf

Guillot, C. (2018). Manufacturers Consider the Impacts of NAFTA Negotiations, Chief Executive, https://chiefexecutive.net/manufacturers-consider-impacts-nafta-negotiations/

Knowledge-Wharton. (2016). NAFTA’s Impact on the U.S. Economy: What Are the Facts? Wharton University, http://knowledge.wharton.upenn.edu/article/naftas-impact-u-s-economy-facts/

McBride, J., & Sergie, M. A. (2018). NAFTA’s economic impact. Council on Foreign Relations, 24. https://www.cfr.org/backgrounder/naftas-economic-impact

O’Leary, C. J., R. W. Eberts and B. M. Pittelko (2012), “Effects of NAFTA on US Employment and Policy Responses”, OECD Trade Policy Working Papers, No. 131, OECD Publishing. http://dx.doi.org/10.1787/5k9ffbqlvk0r-en

OECD.Stat. (2019) https://stats.oecd.org/

Pesaran, M. H., Shin, Y., & Smith, R. J. (2000). Structural analysis of vector error correction models with exogenous I (1) variables. Journal of Econometrics, 97(2), 293-343.

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of applied econometrics, 16(3), 289-326.

U.S. Census Bureau. (2019a). Trade in Goods with Mexico, https://www.census.gov/foreign-trade/balance/c2010.html

U.S. Census Bureau. (2019b). Trade in Goods with Canada, https://www.census.gov/foreign-trade/balance/c1220.html

US Department of Labor, Bureau of Labor Statistics. (2019) https://www.bls.gov/

Autor, D. H., Dorn, D., & Hanson, G. H. (2016). The china shock: Learning from labor-market adjustment to large changes in trade. Annual Review of Economics, 8, 205-240. https://www.nber.org/papers/w21906.pdf

Burfisher, M. E., Robinson, S., & Thierfelder, K. (2001). The impact of NAFTA on the United States. Journal of Economic perspectives, 15(1), 125-144. http://www2.hawaii.edu/~noy/362texts/NAFTA-US.pdf

De La Cruz, J., & Riker, D. (2014). The Impact of NAFTA on US Labor Markets. US Internat. Trade Commission, Office of Economics. https://www.usitc.gov/publications/332/ec201406a.pdf

Dziczek, K., Swiecki, B., Chen, Y., Brugeman, V., Schultz, M., & Andrea, D. (2017). NAFTA briefing: Trade benefits to the automotive industry and potential consequences of withdrawal from the agreement. Center for Automotive Research, Ann Arbor, MI. http://www.cargroup.org/wp-content/uploads/2017/01/nafta_briefing_january_2017_public_version-final.pdf

Eduardo, J., Cota, M. (2016). US manufacturing imports from China and employment in the Mexican manufacturing sector. Cuadernos de Economía, 35(69), 583-613. http://www.redalyc.org/pdf/2821/282144830002.pdf

Guillot, C. (2018). Manufacturers Consider the Impacts of NAFTA Negotiations, Chief Executive, https://chiefexecutive.net/manufacturers-consider-impacts-nafta-negotiations/

Knowledge-Wharton. (2016). NAFTA’s Impact on the U.S. Economy: What Are the Facts? Wharton University, http://knowledge.wharton.upenn.edu/article/naftas-impact-u-s-economy-facts/

McBride, J., & Sergie, M. A. (2018). NAFTA’s economic impact. Council on Foreign Relations, 24. https://www.cfr.org/backgrounder/naftas-economic-impact

O’Leary, C. J., R. W. Eberts and B. M. Pittelko (2012), “Effects of NAFTA on US Employment and Policy Responses”, OECD Trade Policy Working Papers, No. 131, OECD Publishing. http://dx.doi.org/10.1787/5k9ffbqlvk0r-en

OECD.Stat. (2019) https://stats.oecd.org/

Pesaran, M. H., Shin, Y., & Smith, R. J. (2000). Structural analysis of vector error correction models with exogenous I (1) variables. Journal of Econometrics, 97(2), 293-343.

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of applied econometrics, 16(3), 289-326.

U.S. Census Bureau. (2019a). Trade in Goods with Mexico, https://www.census.gov/foreign-trade/balance/c2010.html

U.S. Census Bureau. (2019b). Trade in Goods with Canada, https://www.census.gov/foreign-trade/balance/c1220.html

US Department of Labor, Bureau of Labor Statistics. (2019) https://www.bls.gov/