Estimates of the trade and welfare effects of NAFTA

Lorenzo Caliendo, Fernando Parro

Research output: Contribution to journalArticlepeer-review

526 Scopus citations


We build into a Ricardian model sectoral linkages, trade in intermediate goods, and sectoral heterogeneity in production to quantify the trade and welfare effects from tariff changes.We also propose a new method to estimate sectoral trade elasticities consistent with any trade model that delivers a multiplicative gravity equation. We apply our model and use our estimated elasticities to identify the impact of NAFTA's tariff reductions. We find that Mexico's welfare increases by 1.31%, U.S.'s welfare increases by 0.08%, and Canada's welfare declines by 0.06%. We find that intra-bloc trade increases by 118% for Mexico, 11% for Canada, and 41% for the U.S. We show that welfare effects from tariff reductions are reduced when the structure of production does not take into account intermediate goods or input-output linkages. Our results highlight the importance of sectoral heterogeneity, intermediate goods, and sectoral linkages for the quantification of the welfare gains from tariffs reductions.

Original languageEnglish
Pages (from-to)1-44
Number of pages44
JournalReview of Economic Studies
Issue number1
StatePublished - 1 Nov 2015
Externally publishedYes


  • Computational general equilibrium
  • Gains from trade
  • Intermediate inputs
  • Sectoral interrelations
  • Trade policy


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