NAFTA Essay Example | Topics and Well Written Essays - 2000 words

NAFTA - strain ExampleReduction of Tariffs and other ControlsBasic economics predicts that the reduction of tariffs and other controls on imported goods volition probably lower domestic production and employment in these sectors. There should also be a corresponding increase in activities oriented towards exports (MacArthur 33). In principle, one can investigate the net force of liberalization on output and employment. Currently, this question has important ramifications in twain Canada and Mexico, even though the contexts are quite different--Canada has lowered some barriers as part of the Free Trade Agreement signed with the unify States, while Mexicos adhesion to the GATT required a unilateral tariff reduction, much larger than that of Canada. In both these countries, the tariff reduction has been accompanied by a recession, which has been sharper in Mexico. Neither case is an rarefied test of liberalization. Canada has been lowering tariffs for some time, while Mexicos rec ession had begun before the GAIT accord, as a go of the debt crisis. With regard to Canada, the tendency is that more of the coefficients on the liberalization dummy variables in the fight demand equating are large and statistically significant. This is the case for the following sectors food, leather, textiles, wood, printing, transport equipment, and electrical equipment. This finding is robust to changes in the specification of the equation. Thus, even given the level of production, there still was a strong tendency for labor use to fall.