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The effect of a free trade agreement with the United States on member countries' per capita GDP: A synthetic control analysis
Author(s) -
CollaDeRobertis Esteban,
Garduno Rivera Rafael
Publication year - 2021
Publication title -
regional science policy and practice
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.342
H-Index - 8
ISSN - 1757-7802
DOI - 10.1111/rsp3.12402
Subject(s) - per capita , economics , counterfactual thinking , real gross domestic product , frontier , international trade , free trade agreement , international economics , gross domestic product , free trade , macroeconomics , geography , demography , population , philosophy , archaeology , epistemology , sociology
This study employs the synthetic control method (SCM) to estimate the economic effects of signing free trade agreements (FTAs) with the United States. This method allows for a counterfactual –the country's per capita GDP had it not signed a FTA–, which can be compared with the observed per capita GDP. This difference speaks to the causal impact of the FTA. We principally find that FTAs seem to have a heterogeneous impact. In particular, there is evidence that signing a FTA with the U.S. had a positive impact on Chile and Jordan's per capita GDP and that NAFTA harmed Mexico's per capita GDP. In several other cases, no significant economic impact is discernible. Besides, the more a country depends on the U.S. for its trade, the less beneficial signing a FTA with the U.S. is. This article contributes to the debate on the effectiveness of trade as a development strategy. In particular, the SCM opens up the possibility of a “case‐by‐case” analysis, ultimately revealing that a FTA with the U.S.–a country situated at the world's technology frontier–has heterogeneous outcomes and, by itself, does not guarantee economic development (obtained through a higher per capita GDP).