Transcript Defining North American Economic Integration Raymond Robertson Macalester College

Defining North American
Economic Integration
Raymond Robertson
Macalester College
St. Paul, MN
The Quest for Economic Integration
Defining Integration
The Importance of Integration
Four Measures of Integration
Price Convergence
Factor Markets
Trade Volumes
Product Availability
Defining Economic Integration
Mixing previously
separate groups
“…when product flows between countries are on
the same terms and conditions as within countries”
- Knutson & Ochoa
An Active Definition
We move towards economic integration
by removing barriers to commercial
exchange.
Economic integration is the absence of
barriers to commercial exchange.
Three kinds of barriers
Natural
Cultural
Information
Language
Preferences
Political
Why Integration Matters
People who trade more live better
Productivity and Specialization
Variety
Consumption
Removing barriers to commercial
exchange probably stimulates long-run
growth
Measuring Integration with Prices
Barriers create a wedge between prices
Tariffs are added to prices
Quotas create shortages that drive price up
Transportation costs raise prices
Price convergence is evidence of
integration
Problems: inflation, exchange rates, and
other factors also affect prices
Canada’s currency:
relatively flexible
1/e (CAND/USD, 1986=1)
CANCPI 1986=1
1.02
1.22
1
1.12
.98
1.07
1.02
.96
.97
.94
.92
.87
.92
85
87
89
91
93
95
Year
97
99
01
03
CANCPI 1986=1
1/e (CAND/USD, 1986=1)
1.17
Mexico’s currency:
relatively inflexible
1/e (Pesos/Dollar, 1986=1)
MXCPI 1986=1
40
30
20
10
1
86
88
90
92
94
Year 19**
96
98
100
Result of inflexibility
1/ Real Exch Rate
Mexican X-M Millions US$
991
4.67203
-1717.3
1/ Real Exch Rate
Mexican X-M Millions US$
9.00769
84
86
88
90
92
Year
94
96
98
00
Factor Markets: Capital
Log US Manuf. Output
4.6
10
4.4
9
4.2
4
8
1980
1985
1990
Year
1995
2000
2003
Log Real Maquila Value Added
Rising FDI
component
Tied closely to
U.S.
manufacturing
11
4.8
Log US Manuf. Output
Capital flows
have increased
with NAFTA
Log Real Maquila Value Added
Factor Markets: Labor
Large wage differentials persist
North American labor markets are closely
integrated
Wage movements in the United States affect
wages in Mexico
Border region is more closely integrated than
the Mexican interior
Integration has not increased with NAFTA
NAFTA and Factor Markets
NAFTA changes encouraged capital
flows: capital markets are more
integrated.
Unrelated to NAFTA, the United States
increased border enforcement that may
have neutralized NAFTA’s effects on
labor market integration: labor markets
are not more integrated.
Trade Volumes
If barriers restrict trade, trade should
rise as barriers fall
Trade data are easy to find and analyze
Trade as a share of GDP illustrates the
relative effects of trade liberalization
Canada’s Share of U.S. Trade
Can. Share US Ex
Can. Share US Im
.25
.23
.21
.19
.17
1985
1987
1989
1991
1993
1995
year
1997
1999
2001
2003
Mexico’s Share of U.S. Exports
Fitted values
Mexico Share of US Exports
.16
.12
.08
.04
85
87
89
91
93
95
Year
97
99
01
03
Mexico’s Share of U.S. Imports
Fitted values
Mexico Share of US Imports
.16
.12
.08
.04
85
87
89
91
93
95
Year
97
99
01
03
Share of U.S. Trade
Canadian and Mexican shares of U.S.
exports have been rising
Canadian share of U.S. imports has
been falling recently
Mexican share of U.S. imports has been
rising
Overall, these suggest increasing
integration (possible trade diversion)
Product Availability
Can you get what you want?
Expanding the range of traded products
Gains from increasing the range can be
large (3% increase in estimated United
States welfare)
Fertile topic for future research
Conclusions
We integrate markets by lowering barriers to
commercial exchange
Economic integration raises welfare on average
(in the long run)
There are several ways to measure economic
integration
Rising trade volumes, capital flows, and product
variety suggest NAFTA is contributing to economic
integration
Integration is still incomplete in some markets