The U.S.-Canada Free Trade Agreement: Impacts on U.S. States and Canadian Provinces

Abstract

The U.S.-Canada Free Trade Agreement initiated in 1989 will remove most of the remaining barriers to trade and will have substantial impacts on regional economies in both nations. The economic effects of this Free Trade Agreement are analyzed using a three-stage approach. First, the origin states and provinces of exports from each nation to the other are approximated using weights derived from local output by industry as a share of national totals. Second, commodity-specific analyses of tariffs and nontariff barriers, as well as price and income elasticities of demand, are used to estimate changes in exports from regions in both nations. Third, a series of state- and province-specific input-output analyses are used to model the effects of export increases. The output and employment gains attributable to the Free Trade Agreement indicate that while the largest increases are likely to occur in the traditional manufacturing cores of both nations, relative export gains will be dispersed in a complex patchwork of regions in both nations.