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International Trade and Economic Growth: Causality Relations Within NAFTA

Author

Listed:
  • Andres Giraldo - Jesus Canas
  • Jesus Cañas
Abstract
This research explores empirically the causal link between international trade and economic growth within a free trade area. In particular, we use data from the North American Free Trade Agreement (NAFTA) to estimate the causal relationship between economic growth and trade flows, but isolating trade within the bloc from trade with the rest of the world. The period considered is 1960-2014. Our analysis follows three strategies: we investigate Granger causality on a one-country and two-countries basis and then we include the three countries in the same framework, following the identification strategy proposed by Arellano and Bover (1995). We find that both exports cause growth and growth drives exports. This goes in the same direction as that one followed in the literature. However, under the third strategy, we do not find conclusive evidence that supports the idea that trade within a trade bloc is more important for growth than trade with the rest of the world. Moreover, the long run effect is more significant for growth during the whole period than when NAFTA has been active. Regarding the impact of growth on exports, we find that production is important for enhancing exports within NAFTA in both short- and long-run but when the whole period is considered.

Suggested Citation

  • Andres Giraldo - Jesus Canas & Jesus Cañas, 2016. "International Trade and Economic Growth: Causality Relations Within NAFTA," Vniversitas Económica, Universidad Javeriana - Bogotá, vol. 0(0), pages 1-29, October.
    • Handle: RePEc:col:000416:015302
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    File URL: http://cea.javeriana.edu.co/investigacion-publicaciones/documentos-trabajo/vniversitas-economica
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    Citations

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    Cited by:

    1. Kacou, Kacou Yves Thierry & Kassouri, Yacouba & Evrard, Talnan Hongwopena & Altuntaş, Mehmet, 2022. "Trade openness, export structure, and labor productivity in developing countries: Evidence from panel VAR approach," Structural Change and Economic Dynamics, Elsevier, vol. 60(C), pages 194-205.

    More about this item

    Keywords

    Dynamic Panel Data; NAFTA; Export-led growth hypothesis; Growth-driven exports hypothesis;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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