This paper identifies NAFTA's effects on trade volumes and prices using detailed trade and tariff data. It identifies demand elasticities from the additional wedges driven between consumption patterns in NAFTA versus non-NAFTA countries caused by tariff reductions. Supply elasticities are identified using tariffs as instruments for observed quantities. Analysis of worldwide trade data for 5,000 commodities shows that NAFTA had a substantial impact on international trade volumes, but a modest effect on prices and welfare. NAFTA increased North American output and prices in many highly protected sectors by driving out imports from nonmember countries.

This paper examines how factor proportions determine the structure of commodity trade. It integrates a many-country version of a Heckscher-Ohlin model with a continuum of goods with Paul R. Krugman's (1980) model of monopolistic competition and transport costs. The commodity structure of production and bilateral trade is fully determined. Two main predictions emerge. Countries capture larger shares of world production and trade of commodities that more intensively use their abundant factors. Countries that rapidly accumulate a factor see their production and export structures systematically shift towards industries that intensively use that factor. Both predictions receive support from detailed trade data.