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BIDIRECTIONAL CAUSAL RELATIONSHIP BETWEEN FOREIGN TRADE AND IMMIGRATION: EVIDENCE FROM NAFTA

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Duygu Ekin Şimşek, University of Essex, Colchester, United Kingdom

The relationship between foreign trade and immigration has long been discussed in the international trade literature. Theoretical and empirical studies suggest that free trade policies might weaken the immigration flows. The use of trade policies such as the Free Trade Agreement has been applied to mitigate the economic push factors in order to decrease immigration flows. In the light of this concept, one of the most important contemporary attempts is the North American Free Trade Agreement (NAFTA) in 1992 between the United States, Canada, and Mexico due to its size of effect in the region. One of the reasons to create NAFTA was to increase bilateral trade in order to decrease immigration flows from Mexico to the United States (US). As the well-known Heckscher-Ohlin (1933) model implies that when countries go from autarky to free trade, they would have a tendency to specialise in the goods and services which they have a comparative advantage in. Thus, both countries would benefit from free trade through economic efficiency. In this sense, in the cases of US and Mexico, elimination of trade barriers by NAFTA should bring economic benefits for both countries while decreasing immigration flows from Mexico to the US as predicted in Heckscher-Ohlin model. There has been a debate over the theoretical bases of NAFTA since its launch. In the case of free trade agreements and immigration, it is assumed that there is a one-directional negative relationship between foreign trade and immigration in which they are treated as substitutes. On the other side, some authors said that there is a positive relationship between trade and immigration so that they are actually complements. The aim of this paper is to review this debate and address it from a different perspective by searching bidirectional causal relationship between fo- 42 reign trade and immigration in the case of NAFTA and its effect on Mexican immigration to US. The five sections of this paper are as follows: literature review, data, methodology, empirical results and discussion. Firstly, it is going to review an existing theoretical and empirical literature on foreign trade in respect of immigration and Free Trade Agreements. Secondly, it is going to present the data of the US export-import and authorised immigration from Mexico to the US. Thirdly, empirical analysis is going to be conducted by employing modern and sophisticated econometric method: Granger-Causality Test in order to show that there is a bidirectional causal relationship between Mexico-US bilateral trade and immigration from Mexico to US. Finally, results of the empirical analysis are going to be explained and analysed. At the end this paper will try to come up with an answer to the following question: Is immigration a conundrum for NAFTA?

II. InTradersUluslararası Ticaret Kongresi Kongre Kitabı
The Second InTraders International Conference on International Trade Conference Book editör: Kürşat Çapraz
İstanbul: Hiperlink Yayınları, 2018.

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