Introduction

The North American Free Trade Agreement was signed between the United States, Canada and Mexico in 1992 and was put into effect in 1994. The objective of NAFTA was to remove the barriers to trade restrictions in order to have a successful open monetary market between these countries (Floyd). Anna Swanson and Kevin Granville, in a New York Times article, detail that before NAFTA, the average tariffs were of 7.1% for Mexico, 3.5% for the United States, and 4.2% for Canada;these trade tariffs were reduced to 0%, under Nafta (Swanson & Granville).

According to Sraders, NAFTA has increased overall trade to over $1 trillion, hence, improving the economy of all three members (Sraders). On the other hand, there has been a decrease on manufacturing jobs within recent decades for the U.S. and Canada (Amadeo); As a result, Government has been urged to re-define and re-negotiate several trade agreements, amongst them and the most recent is NAFTA.

This project focuses on taking a deeper look at the economic performance after NAFTA went into effect. We would like to explore the following:

1. Have the economies of the three countries benefited or deteriorated since NAFTA’s ennacment?

2. Is there a specific country that benefited or worsened the most from NAFTA?

3. Is there a visual relationship between the variaiton of eocnomic indicators and the performance of trade among each member of NAFTA?

Data & Methods

Data Sources

We have chosen to use the world bank data bank for all of our variables; the World Bank data bank offers a free open soruce library that allows researchers to have access to a bast collection of global development and economic data (World Bank).

Specifically, we used the package “wbstats” to search and download our entire data set for each indicators, this process allowed us to make changes to our data in a reproducible manner as our analysis progressed (Pitburn).

Data Set Construciton

The packages ggplot, ggrepel, dplyr, and expss were used to manipulate, organize, and visualize each of our variables. We first downloaded a data set for each of our economic indicators and then used Dplyr to subset the data for the NAFTA countries only.

Each variable contains exactly between 171 to 174 observations and 4 variables.The observations are for each year starting in 1960 and ending in 2017 (U.S. ends in 2016).Theese variables are Value (economic indicator), date, and country.

The variable ‘year’ was created using Ifelse() to point out the beginning of NAFTA. In addition, the variable ‘deficit’ was created to calcualte the trade deficit, subtracting exports from imports.

This process was applied to the following variables:

1. GDP GRowth:

Annual percentage growth rate of GDP at market prices based on 2010 $USD Data set code - NY.GDP.MKTP.KD.ZG

library(expss)
GdpG_Nafta %>%
  tab_cells(Rate) %>%
  tab_cols(total(), country) %>%
  tab_stat_mean_sd_n() %>%
  tab_stat_median() %>%
  tab_pivot() %>%
  htmlTable(caption="GDP Growth Rate per country from 1960 to 2016")
GDP Growth Rate per country from 1960 to 2016
 #Total     country 
   Canada   Mexico   United States 
 Rate 
   Mean  3.4   3.2 4.0 3.1
   Std. dev.  2.7   2.2 3.6 2.1
   Unw. valid N  171.0   57.0 57.0 57.0
   Median  3.5   3.1 4.1 3.2

2. GNI:

Gross National Income based on 2010 $USD.

Gni_Nafta %>%
  tab_cells(GNI) %>%
  tab_cols(total(), country) %>%
  tab_stat_mean_sd_n() %>%
  tab_stat_median() %>%
  tab_pivot() %>%
  htmlTable(caption= "Summary of GNI in $US (Thousands) from 1960 to 2017 ")
Summary of GNI in $US (Thousands) from 1960 to 2017
 #Total     country 
   Canada   Mexico   United States 
 GNI 
   Mean  16.9   20.6 4.2 25.8
   Std. dev.  16.5   15.3 3.3 17.9
   Unw. valid N  168.0   56.0 56.0 56.0
   Median  9.7   20.1 2.9 24.0

3. Trade:

Traded merchandise as a % of GDP in current $USD.

Trade_Nafta %>%
  tab_cells(Value) %>%
  tab_cols(total(), country) %>%
  tab_stat_mean_sd_n() %>%
  tab_stat_median() %>%
  tab_pivot() %>%
  htmlTable(caption= "Summary of Trade as % of GDP from 1960 to 2017 ")
Summary of Trade as % of GDP from 1960 to 2017
 #Total     country 
   Canada   Mexico   United States 
 Value 
   Mean  37.3   55.1 37.3 19.1
   Std. dev.  20.1   13.2 18.8 6.7
   Unw. valid N  173.0   58.0 58.0 57.0
   Median  32.9   52.6 31.8 19.4

3. Imports:

Imports of goods and services as a % of GDP in current $USD.

Imp_Nafta %>%
  tab_cells(Value) %>%
  tab_cols(total(), country) %>%
  tab_stat_mean_sd_n() %>%
  tab_stat_median() %>%
  tab_pivot() %>%
  htmlTable(caption= "Summary of Imports as a % of GDP from 1960 to 2017 ")
Summary of Imports as a % of GDP from 1960 to 2017
 #Total     country 
   Canada   Mexico   United States 
 Value 
   Mean  18.9   27.1 19.0 10.4
   Std. dev.  9.8   6.2 9.6 4.1
   Unw. valid N  173.0   58.0 58.0 57.0
   Median  17.4   25.7 16.4 10.3

4. Exports:

Exports of goods and services as a % of GDP in current $USD.

Exp_Nafta %>%
  tab_cells(Value) %>%
  tab_cols(total(), country) %>%
  tab_stat_mean_sd_n() %>%
  tab_stat_median() %>%
  tab_pivot() %>%
  htmlTable(caption= "Summary of Exports as a % of GDP from 1960 to 2017 ")
Summary of Exports as a % of GDP from 1960 to 2017
 #Total     country 
   Canada   Mexico   United States 
 Value 
   Mean  18.4   28.1 18.3 8.8
   Std. dev.  10.5   7.0 9.4 2.6
   Unw. valid N  173.0   58.0 58.0 57.0
   Median  17.3   26.7 17.4 9.0

5. Trade Deficit:

Imports subtracted by exports as a % of GDP in current $USD

Trade_Nafta$deficit= Imp_Nafta$Value - Exp_Nafta$Value
Trade_Nafta %>%
  tab_cells(deficit) %>%
  tab_cols(total(), country) %>%
  tab_stat_mean_sd_n() %>%
  tab_stat_median() %>%
  tab_pivot() %>%
  htmlTable(caption= "Summary of Trade DEFICIT as % of GDP from 1960 to 2017 ")
Summary of Trade DEFICIT as % of GDP from 1960 to 2017
 #Total     country 
   Canada   Mexico   United States 
 deficit 
   Mean  0.4   -1.0 0.8 1.6
   Std. dev.  2.5   2.0 2.7 1.9
   Unw. valid N  173.0   58.0 58.0 57.0
   Median  1.1   -0.9 1.6 1.2

Data Methods

Our analysis methodology is primarily focused on using visualizaiton techniques such as bar charts, boxplots, smooth lines, and line plots. These have helped us identify trends for longitudinal analysis as well as being able to analyze categorical and numerical continuous variables.

Visual Analysis

GDP

The graph below gives a graphical representation of the GDP growth rate of the three countries combined before and after NAFTA was enacted.

library(ggplot2)
ggplot(GdpG_Nafta, aes(date_ct, Rate, fill=year)) + geom_col() + 
  labs(title="GDP growth rate for all members of NAFTA combined",
       subtitle="NAFTA was enacted in 1994, differentiated by color.")

Upon NAFTA’s immediate enactment the combined GDP growth rate grew higher than it had in previous years. Also, the combined GDP growth rate became less volatile after NAFTA was enacted. However, the GDP growth rate was generally higher before NAFTA’s enactment, and it reached its lowest point after NAFTA’s enactment - this later point though, can be explained by the 2008 economic recession.

The following graph breaks down the GDP growth rate per country.We see that the growth rate dropped for all the nations through time. Mexico’s rate was the highest before NAFTA was enacted and continued to be the highest after NAFTA was passed; however, right at the time of NAFTA’s sign off, Mexico’s GDP growth rate fell behind the US.

ggplot(GdpG_Nafta, aes(date_ct, Rate, colour= country)) +
  geom_smooth() + labs(title="GDP Growth Rate per Country", x="Years")

Canada’s growth rate was the second highest before NAFTA was enacted and continued to be the second highest after NAFTA was passed; notably, Canada’s growth rate was the lowest of all three nations right around the time NAFTA’s enactment.

Although the US growth rate was peeking right around the time of NAFTA’s enactment; it had the lowest before NAFTA’s enactment and continued to be the weakest after NAFTA’s enactment.

Now, lets compare the distribution of GDP growth rate per country by grouping the years on “Prior” and “Post” NAFTA.

ggplot(GdpG_Nafta, aes(year,Rate, fill= country)) + geom_boxplot(alpha= .5) +
  labs(title="GDP Growth Rate per Country", y="Growth Rate", subtitle="Prior Nafta: 1960 - 1993 Post Nafta: 1994 - 2017")

We can note that the median for all three countries was higher before NAFTA’s enactment. Mexico had the highest GDP growth rate before and after NAFTA’s enactment.

Before NAFTA’s enactment, Canada had the second highest GDP growth rate. After NAFTA’s passing, the US growth rate grew higher than Canada.The negative GDP growth rate after NAFTA outliers are explained the 2008 economic recession.

GNI

It can be noted that before NAFTA, GNI had a positive, upwards, trend. After NAFTA was enacted, the combined GNI grew at an exponential level. This signals a positive correlation for the combined GNI of all countries and the enactment of NAFTA.

ggplot(Gni_Nafta, aes(date_ct, GNI, fill=year)) + geom_smooth() +
  labs(title="NAFTA's overall Gross National Income",
       subtitle="Nafta was enacted in 1994, differentiated by color",
       x="Years", y="$US (Thousands)")

Overall Trade

This visualization combines the data of all three countries combined and shows the change in traded merchandise before and after NAFTA was enacted. In general, it can be seen that the overall share of NAFTA’s merchandise traded immediately improved after upon NAFTA’s sign off. Also, this metric showed steady growth under NAFTA and remained unaffected despite the 2008 economic recession.

ggplot(Trade_Nafta2, aes(date_ct, Value, fill=year)) + geom_col() +
  labs(title="Overall Share of Traded Merchandise as a % of GDP",
       subtitle="Prior Nafta: 1960 - 1993 Post Nafta: 1994 - 2017", x="Years", y="% of GDP")

After breaking down at country level, we can relate Mexico’s performance to a J-curve; since it benefited the most from NAFTA since it steadily increased the overall share of NAFTA’s traded merchandise as a % of GDP. Canada’s percentage of NAFTA’s traded merchandise dropped significantly after NAFTA’s enactment, and it appears that it will continue to decline. Ultimately, the overall share of NAFTA’s traded merchandise as a % of GDP for the US grew steadily but it did not surpass any of the two other countries.

ggplot(Trade_Nafta, aes(date_ct, Value, colour=country)) + 
  geom_point() + geom_smooth() + 
  labs(title="Overall share of Merchandise Traded as percentage of GDP",
       subtitle="From 1960 to 2016", x="Years", y="% of GDP")

Imports and Exports

Overall, we can see that all three countries had higher imports as a consequence of NAFTA’s enactment. Evidently, Mexico’s imports, as a % of GDP, grew the most. This was followed by the US and Canada - who’s imports grew the least, but grew, nonetheless.

Imp= Imp_Nafta %>%
  filter(date_ct=="1994-01-01"|date_ct=="2016-01-01")
Imp$year= ifelse(Imp$date_ct=='1994-01-01',"1994","2016")
ggplot(Imp, aes(country,Value, fill=year)) + 
  geom_col(position = "dodge", stat="identity") +
  labs(title="Share of Imports of as a % of GDP per Country", subtitle="Nafta was enacted in 1994"
       , y="% of GDP") + theme_bw()+ 
  annotate("Text", x="Mexico", y=20, size=2.5,label="Mexico had largest growth")

Similarly to the barplot for imports, we can see that two of the three countries had higher exports as a consequence of NAFTA’s enactment. Apparently, Mexico’s exports, as a % of GDP, grew the most. Exports for the US also increased. However, for Canada, exports fell after NAFTA’s enactment.

Exp= Exp_Nafta %>%
  filter(date_ct=="1994-01-01"|date_ct=="2016-01-01")
Exp$year= ifelse(Exp$date_ct=='1994-01-01',"1994","2016")
ggplot(Exp, aes(country,Value, fill=year)) + 
  geom_col(position = "dodge", stat="identity") +
  labs(title="Share of Exports of as a % of GDP per Country", subtitle="Nafta was enacted in 1994"
       , y="% of GDP") + theme_bw()+ 
  annotate("Text", x="Mexico", y=38.5, size=2.5,label="Mexico had largest growth")

Deficit

Clearly, the traded merchandise deficit was better, overall, after NAFTA’s enactment. The debt reached higher peaks and lower lows after NAFTA’s enactment.

ggplot(Trade_Nafta, aes(date_ct, deficit, fill=year)) + geom_col() +
  labs(title="Overall share Traded Merchandise Deficit as % of GDP",
       subtitle="Nafta was enacted in 1994, differentiated by color",
       x="Years", y="% of GDP")

For the US, the trade deficit improved significantly.

Mexico’s mean deficit mostly remained unchanged.

Canada’s deficit experienced the most prominent change relative to NAFTA’s enactment.

ggplot(Trade_Nafta, aes(year, deficit, fill= country)) + geom_boxplot(alpha=.5) + 
  theme_bw() + labs(title="Traded Merchandise Deficit as % of GDP per Country", 
                    subtitle="Prior Nafta: 1960 - 1993 Post Nafta: 1994 - 2017", y="% of GDP")

Discussion & Conclusion

There seems to be a positive correlation with the improvement of the economies of Mexico, Canada, and the United States after NAFTA was enacted. Our visualizations conclude that all of three participating nations performed better based on our economic indicators.

A correlation is apparent between the progress of the economies and the enactment of the NAFTA treaty. Due to the patterns that we see in our results, we can infer that the NAFTA treaty benefited Mexico the most. Notably, Mexico’s imports, exports, and GDP growth rate grew the most in compared to the other two countries.

The US’s imports, exports, Trade Deficit, and GDP growth rate improved the second most after Mexico. Lastly, Canada also benefited from the NAFTA, but not as much as Mexico or the US. Canada’s imports grew, but it exports fell after NAFTA’s enactment.

Furthermore, Canada’s share of NAFTA’s traded merchandise dropped significantly after NAFTA’s enactment and it appears that it will continue to decline. Before NAFTA’s enactment, Canada had the second highest GDP growth rate.

It can be inferred that Mexico benefited the most from the NAFTA treaty. The US also benefited from the deal. But Canada could be better off without being part of the treaty - since it was performing in some areas better before the enactment of NAFTA.

However, before jumping to any significant conclusions, it is worth mentioning that: 1. Correlation does not equal to causation. 2. This study analyzed the performance of economic indicators relative to a period: before and after the enactment of NAFTA. There could be other economic factors in which Canada performs better than Mexico and/or the US given the time period.

Bibliography

About us. (n.d.). Retrieved December 10, 2018, from https://data.worldbank.org/about

Amadeo, K. (2018, November 11). 6 Negative Effects of NAFTA. Retrieved December 10, 2018, from https://www.thebalance.com/disadvantages-of-nafta-3306273

Floyd, D. (2018, December 05). NAFTA’s Winners and Losers. Retrieved December 10, 2018, from https://www.investopedia.com/articles/economics/08/north-american-free-trade-agreement.asp

Piburn, J. (2018, January 03). Introduction to the wbstats R-package. Retrieved December 10, 2018, from https://cran.r-project.org/web/packages/wbstats/vignettes/Using_the_wbstats_package.html

Sraders, A. (2018, July 18). What Is NAFTA? History, Purpose and Accomplishments. Retrieved December 10, 2018, from https://www.thestreet.com/politics/nafta-north-american-free-trade-agreement-14651970

Swanson, A., & Granville, K. (2017, October 12). What Would Happen if the U.S. Withdrew From Nafta. Retrieved December 10, 2018, from https://www.nytimes.com/2017/10/12/business/economy/what-would-happen-if-the-us-withdrew-from-nafta.html