A causality analysis of trade flows in the North American free trade agreement

Abstract

This paper examines trade development in Mercosur and Pacific-Asian economies during the past decade from the perspective of regional integration. The main focus is the development of intraindustry trade. Globalization of corporate activities in the U.S. during the I980s and, more recently, in Japan and the new industrial economies stimulated in part by currency factors since late 1985 appear to have contributed to a significant increase in intra-industry trade among Pacific-Asian economies, particularly in technology-intensive products. In the case of Mercosur, bilateral trade between Argentina and Brazil is the principal element of success. Furthermore, the two biggest economies showed the highest intra-industry trade levels. The desegregated analysis showed that intra-industry trade in Mercosur is centered around products with high intensity in the use of human capital and technology. In addition, the analysis showed that an important part of intra-regional trade is centered around intermediate products and industries of capital goods.