The effect of a free trade agreement with the United States on member countries’ per capita GDP: A synthetic control analysis

Abstract

This study uses the synthetic control method to estimate how signing a free-trade agreement with the United States affects member countries’ GDP per capita. For each country, the method constructs a counterfactual estimate of income had the agreement not been signed and compares it with observed outcomes. The results are heterogeneous: agreements are associated with positive per-capita GDP effects in Chile and Jordan, while NAFTA is estimated to have harmed Mexico’s per-capita GDP; several other cases show no discernible significant effect. The analysis also finds that agreements appear less beneficial when a country depends more heavily on trade with the United States. The findings contribute to debates about trade as a development strategy and show that an agreement with a high-income technology-frontier economy does not by itself ensure economic growth.