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September/October 1990, 
Vol. 72, No. 5
Posted 1990-09-01

What Do Economic Models Tell Us About the Effects of the U.S.-Canada Free Trade Agreement?

Cletus C. Coughlin examines five studies to better understand their estimates and determine why they contradict each other. The conflicting results emerge both from different assumptions about how certain markets operate and the values of some parameters and from differences in the level of detail with respect to commodities and countries. As Coughlin stresses, several key aspects of the agreement are not included in these models because they are difficult to quantify. These unmeasured aspects, the author says, may be more important than the measured ones in terms of the economic effects of the agreement. Thus, the message of this article, which is applicable to all economic models of trade policy changes, is "let the user beware.”