Regional integration and dynamic adjustments: Evidence from gross national product functions for Canada and the United States

We estimate a translog Gross National Product function and test for endogenously determined structural change allowing for anticipated and lagged responses to regional trade agreements. We found that Canada embarked on a long transition path prior to the implementation of the Canada-U.S. Trade Agreement, a result reminiscent of Magee's (2008) results concerning RTAs’ trade creation effects. In contrast, the United States experienced an abrupt structural change a year after the North American Free Trade Agreement took effect. This reflects that smaller economies benefitting from larger changes in terms of trade are confronted to more complex adjustment processes than larger economies.

► We estimate a translog Gross National Product function and test for endogenously determined structural change. ► We rely on structural change processes experienced by Canada and the United States in response to regional trade initiatives. ► Canada embarked on a long transition path prior to the implementation of the Canada-U.S. Trade Agreement. ► The United States experienced an abrupt structural change a year after the North American Free Trade Agreement took effect. ► We also found that Stolper–Samuelson and Rybcynski elasticities experienced sign reversals and a magnification effect.