NAFTA and the Geography of North American Trade

Debates over the desirability of a preferential trading area frequently begin with the supposition that it will have two effects on the volume of trade: It will increase trade between members of the trading area and decrease trade between members and nonmembers. This article demonstrates, however, that at the regional level, the effects of the North American Free Trade Agreement (NAFTA) might be more complex than previously supposed. Specifically, according to gravity model estimates, NAFTA has led to (1) decreased trade between Eastern Canada and the United States and Mexico, (2) increased trade between Central Canada and the United States and Mexico, and (3) increased trade between Western Canada and Mexico but no change in the volume of trade between Western Canada and the United States. The model also indicates that NAFTA has caused a decrease in trade between Canadian regions and both Europe and Asia, while increasing Mexico's trade with Asia.