Trade Openness in North America: The Impacts of NAFTA

The objective of this paper is to examine the impacts of the creation of NAFTA on trade openness in the North American region as a whole. We first assess these impacts of on NAFTA on individual member countries- namely, the United States, Canada and Mexico. Then we explore the impacts of NAFTA on North America as a bloc. Towards our goal we develop an empirical model that includes several independent variables to control, among others, for productivity, inflation, capital formation, per capita income, monetary policy and the existence of NAFTA. We collect annual time series data on all variables from 1981 to 2010 from the World Bank\u27s World Development Indicators (WDI) and the United Nations\u27 Comtrade databases. Findings suggest that NAFTA has had a positive and significant impact on promoting trade, both at the regional and individual levels. Thus the decision makers in NAFTA member countries should pursue their efforts to (i) eliminate or harmonize their tariffs, and (ii) implement legislations that promote or facilitate the flows of goods and services within the region