Chang-Tai Hsieh, Nicholas Li, Ralph Ossa, Mu-Jeung Yang, 26 March 2017

Trade economists typically believe that in addition to lower prices for imported goods, trade liberalisation also brings import variety and domestic productivity gains. This column accounts for these ‘new’ gains in a careful reconsideration of the Canada-US Free Trade Agreement. Although the agreement did see improvements in Canadian income associated with import variety and domestic productivity, these were far outweighed by the welfare loss associated with the reduction in domestic variety. Nonetheless, Canadian welfare did improve overall when one takes into account the ‘traditional’ gains associated with lower import prices.

CEPR Policy Research