The impact of free trade with the United States on the pattern of Canadian consumer spending and savings

Abstract

This paper examines the effects of the formation of the free trade agreement (FTA) between Canada and the United States has had on the pattern of Canadian consumption and savings. The analysis employs a version of the almost ideal demand system (AIDS) which allows individual demands to be conditional on shift parameters introduced to test for changes since the formation of the FTA. The empirical results strongly indicate significant changes in the relationships since that time. The formation of the FTA appears to have reduced the Canadian savings rate and increased the shares for the consumption of all categories of goods, while leaving the share of services largely unchanged.