Trade, Sensitivity and Feedbacks: Interregional Impacts of the US-Canada Free Trade Agreement

Abstract

Most analyses of the impacts of existing and proposed free trade agreements have focused on the impacts measured at the national level. Given the significant differences in the composition of industry across states within nations, concern has been raised about the possibility of there being differences in impacts of free trade at the sub-national level. However, the states’ economies of the United States do not function in isolation; there is substantial inter-state trading in goods and services and a complex pattern of flows of funds of various kinds (investments, taxes, transfers, pensions, dividends and so forth). As a result, international trading relationships between one state and a foreign country will have the capacity to create a complex set of ripple or multiplier effects on the rest of the United States. The basic nature of the interregional relationships are presented graphically for a four-region version of the interregional computable general equilibrium model in an attempt to reveal the subtle nature of the linkages and feedback effects.