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The Macroeconomic Effects of the Canada–US Free Trade Agreement on Canada: A Counterfactual Analysis
Author(s) -
Zhang Lin,
Du Zaichao,
Hsiao Cheng,
Yin Hua
Publication year - 2015
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.12217
Subject(s) - counterfactual thinking , economics , unemployment , productivity , real gross domestic product , counterfactual conditional , unemployment rate , free trade agreement , macroeconomics , international economics , free trade , philosophy , epistemology
We evaluate the macroeconomic effects of the Canada–US Free Trade Agreement ( FTA ) on Canada's economy using a counterfactual analysis. We exploit the dependence of GDP growth (labour productivity and unemployment, respectively) among different economic entities and construct the counterfactuals using data from countries other than Canada. We find that in the adjustment period from 1989:Q1 to 1992:Q1, Canada's economy bore the short‐run adjustment costs of the FTA with a decline of the annual real GDP by 2.56 per cent and a decline of the labour productivity by 0.62 per cent. After the adjustment period, the FTA had a positive and permanent effect of 1.86 per cent on Canada's annual real GDP growth and raised the labour productivity from 1992 to 1994 by 2.39 per cent on average. Moreover, the FTA increased Canada's annual unemployment rate by 1.81 per cent in the period 1989–94.