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Modeling the removal of NAFTA rules of origin

20 Jun 2007

Section 2 describes the dynamic general equilibrium model that is used, formalizes the firm’s problem in the presence of a ROO constraint, and addresses the calibration issue of the technological parameters that is raised by the presence of a ROO. [...] Thus, preferential ROO are typically absent from a CU arrangement and movements of goods within a CU are not based on their “originating status” but on the principle of “free circulation”.3 Therefore, when assessing the economic and welfare impact of moving from a FTA to a CU, it is not sufficient to proxy the integration as the adoption of a common external tariff towards the rest of the world. [...] Trade flows are tracked by a sequence of indices identifying (from left to right) the country of origin followed by the country of destination, the sector (from the country of origin) supplying the good, the sector (of the destination country) purchasing the good, and finally the period. [...] Tariff rates are given byτ i , j ,s , which represents the tariff imposed by country j on good s of country i, and Pi,s,v is the price of good s produced in country i. The assumption of constant returns to scale technology implies that the cost function is linear in the level of output and in this case, both the average cost and the marginal cost equal the unit cost v. Therefore, marginal cost pri [...] In (6a), the value content is expressed as the ratio of the sectoral value added in country j plus the value of raw materials/intermediaries from North American origin to the overall value of sectoral production (i.e., including the value of intermediary goods from non-NAFTA origins).
trade policy politics economics economy export financial market tariff international trade trade agreements business certificates of origin exports free trade interest investments labour prices saving protectionist current account production function capital (economics) business economics perfectly competitive cobb-douglas cobb–douglas production function perfect competition a7 time preference

Authors

Georges, Patrick

Pages
36
Published in
Canada

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