Will, MacPherson / ECONOMY OF WESTERN NEW YORK
Although several other approaches toward impact estimation have been proposed in recent years, this article offers a microeconomic perspective based on the experiences of individual firms. Although the contingency issue remains the same, the task of assessing the impact of NAFTA is transferred to the owners and managers who make production and employment decisions at the plant level. In short, rather than attempt to find an econometric estimate, we decided to ask decision makers themselves about the economic effects of NAFTA. Given that Erie County was ranked within the nation’s top 100 counties in terms of potentially negative impact (NAID, 1996), we expected to find some evidence of this at the establishment level. After all, it is reasonable to assume that owners or managers ought to know something about the extent to which NAFTA has had an impact on the businesses that they preside over. (We shall say more about this assumption presently.) Before looking at our results, however, it is appropriate to provide a contextual back- drop regarding the nature of the study region. Why might WNY be considered trade sensitive? and What can we learn from an examination of this region’s responses to NAFTA?
WNY is a declining industrial region located on the eastern perimeter of the U.S. Rustbelt. Although several definitions of WNY exist for planning purposes, we define the region in terms of the two contiguous counties (Erie and Niagara) that share an international border with Canada along the Niagara River. These two counties contain the bulk of upstate New York’s older indus- tries. Nationally recognized for Buffalo wings and lake-effect snow, this region has a long history of capital out-migration, population decline, and slow income growth (Institute for Local Gover- nance and Regional Growth, 1999). With the passage of the Canada-United States Free Trade Agreement (FTA) in 1989, however, public agencies throughout the WNY area seemed optimistic that economic revival would soon take place as a result of expanded bilateral trade (including new inward investment from Canada). Although two-way trade across the Niagara River has certainly increased over the post-FTA period, growth rates for imports and exports remain similar to those that prevailed prior to 1989. In fact, 10 years after the FTA, the economy of WNY can be described as slow growing at best—despite substantially increased trade (Bagchi-Sen, 1999). Although increased trade has contributed significantly to gross regional product (GRP), the same cannot be said for employment (Institute for Local Governance, 1999). More specifically, job growth trails export growth by a considerable margin.
None of this should be taken to imply that the FTA (or NAFTA) has done nothing to help the region. In a series of surveys sponsored by the Canada-U.S. Trade Center (CUSTAC) at the State University of New York at Buffalo, it was found that significant numbers of small WNY firms had become export active in the early 1990s as a direct result of the trade opportunities implied by the FTA (Chandra, 1992; MacPherson, 1997; McConnell & MacPherson, 1990). Although none of this had much to do with tariff cuts or other regulatory factors, it would appear that the accord pro- vided a symbolic wake-up call to many local firms. On balance, however, these types of micro- level effects have not amounted to very much in aggregate terms, and the same can be said for post- FTA Canadian investment in the WNY area (MacPherson, 1997). Nevertheless, it should be emphasized that the various CUSTAC surveys were conducted in the early to mid-1990s, leaving room for the possibility that FTA/NAFTA impact might not have had enough time to manifest itself (recall that tariff reductions for many commodities were given as much as a 15-year phase-in period under NAFTA).
For regions like WNY, however, the importance of exports is hard to overstate. Over the period 1978 to 1998, CUSTAC’s cross-sectional export-base model yielded anr2 of .67 (the export param- eter was 0.562 at p < .05). According to this model, a 1% increase in local exports delivers a 0.56% increase in GRP. Parameters of this magnitude and significance have rarely been found at the national level for any time period, and the same can be said for most states. Clearly, then, exports are strategically important to the WNY economy. Given that more than 70% of the region’s exports are sold to Canada, the liberalized trade provisions of the FTA and NAFTA would seem to serve WNY’s economic interests quite well.
. . . a 1% increase in local exports delivers a 0.56% increase in GRP . . . . Given that more than 70% of the region’s exports are sold to Canada, the liberalized trade provisions of the FTA and NAFTA would seem to serve WNY’s economic interests quite well.