Testing the relationship between real effective exchange rate and absolute cost advantage. A dynamic panel GMM analysis from NAFTA

This research aims to test the nexus between real effective exchange rates and absolute cost advantage for the North American Free Trade Agreement (NAFTA) between 1995–2014. By using the dynamic panel generalised method of moments (GMM), the findings show that the manufacturing sectors’ competitiveness is positively associated with the decrease in unit production costs and negatively related to the increase in the intrasectoral profitability gap.