The Role of IT and Financialization in the Recent American Growth
Young-Soo Lee and Hwanjoo Seo

The upswing in the US economy since the early 1990s has provided researchers with interesting topics. For example, topics like the economic effect of information technology, financialization, volatility of the stock market, changing corporate governance, and income inequality have been extensively studied. This study places emphasis on how information technology (IT) and the prosperous stock market created a structural change in the US economy rather than examines the recent change in the US economy overall. In other words, it is mainly studied how the spread of IT and advance in the financial system have affected the 1990s, named New Economy. The studies with focus on new production paradigm or digital economy argue that the US economic boom is ascribed to static and dynamic economies of scale resulting from industrialization of information and informatization of industries. Consequently, it is assumed that the development and diffusion of IT transformed the US economy into the regime of high growth and productivity. On the contrary, from the views that stress financialization especially in households, the US economic boom is compounded of changes in labor market and corporate governance alongside in financial market, and increase in consumption. That is, they argue that the US economic boom or demand expansion is attributed to a mixture of the flexible labor market, boost of the stock market through maintaining low interest rates, and increase in consumption of durable goods.

This study tests variously these two hypotheses for structural change. To begin with, the dynamic characteristics of IT and financial sector are inspected using the database of Bureau of Economic Analysis and Board of Governance of Federal Reserve System. After that, to examine the long-run features of related time series, unit root test and cointegration test are conducted, which are followed by cusum test, F-test, and test with dummy variables for structural change finally. The results are as follows. First, it is observed that IT has enhanced efficiency of non-information capital and also contributed increasingly to growth of labor productivity since the early 1990s. Second, the influence of financial assets in a form of stock has swollen on consumption since 1993. It is examined that the expanding consumption are associated with increasing stock possession of households by investing funds including pension funds. Although the clear conclusions are not achieved regarding time division and structural change, the results indicate that the contribution of IT to labor productivity growth and the influence of wealth in a form of stock on the consumption have been rapidly expanded since the early 1990s, especially 1993.

The Expansion of Global Conglomerates into Asia after the Economic Crisis and Its ImplicationsYoungho Park

With the spreading phenomenon of the so-called globalization, western conglomerates have accelerated in expanding into the Asian region because they considered the changing investment environment had resulted from extensive restructuring and market liberalization after the economic crisis.

While in the past, overseas direct investment of western conglomerates had focused on North America and Europe owing to the relatively high entry barrier of the Asian region, after the crisis, they turned towards the Asian region, observing the region's dynamic economy based on the market liberalization and the huge market size. To respond to this new circumstance, Japanese companies are also seeking new strategies to penetrate into the Asian market along side their own difficulties of domestic economic recession and business restructuring. Thus, the competition between developed countries is intensifying to grasp the Asian market.

One of the most striking patterns which emerged in the investment behavior of western conglomerates in Asia following the economic crisis is enlargement of mergers and acquisitions (M&A) between borders. Before the crisis, the greenfield investment was a major pattern of investment because of Asian countries' restrictions on acquisitions with foreign capital. However, following the crisis, market liberalization expanded and M&A type direct investments are still rapidly growing. This is due to perfect harmony of the interests of countries concerned to overcome the crisis by attracting foreign capital and the interests of foreign companies preferring M&A.

It is predicted that the investment of western conglomerates will continue to grow due to Asian countries successfully handling and overcoming the crisis. Moreover, due to the ongoing process of financial reform and greater market liberalization in the sector of information telecommunication (IT) and distribution, western conglomerates with competitiveness will increase their investment in those particular sectors.

It could be possible to interpret these phenomena, the rapidly growing expansion of western conglomerates, as one of the tactics for strengthening the control in Asian market and further, taking the leadership in the international economy. It will lead to new competition and change in the cooperative structure of the Asian region.

Consequently, this changing situation provided us with both opportunities and challenges at the same time. We cannot ignore the significance of expansion of western conglomerates into the Asian region since Korean companies had focused traditionally on investment in the Asian region. We need to seek new Asian investment strategies through continuous monitoring and benchmarking on global conglomerates into Asia.

The Prospect of Japanese Economic Cooperation with North Korea and the South Koreas Preparation
Jiho Shin

Since the inter-Korean summit meeting, which has accelerated bringing about a new order on the Korean peninsula, the South has been showing keen interest in Japans economic cooperation with the North. This is because the economic conditions of the North will be greatly influenced by when and how Japan, the second-largest economy, will pursue economic cooperation with the North. Future South-North economic cooperation strategies will be hugely affected by the outcome of this decision.

Japan has made efforts to improve relationships with the North by gradually and steadily promoting economic exchanges with them. However, Japanese companies have been passive in and even negative toward their cooperation with the North since the mid-1970s, when the North could not repay trade loans to Japan. A series of events during the past ten years, such as suspicions of nuclear arms development and the firing of a Daepo-dong missile, have aggravated Japanese public sentiment toward the North. The only Japanese-North Korean tie has been Japanese food aid for famished North Koreans. In contrast, however, North Korea hopes to revive economic support from Japan.

The economic cooperation between Japan and North Korea will only start in earnest after the normalization of diplomatic relations between these two countries. But it will only be possible when the problems involving the missile firing and the Norths kidnapping of Japanese citizens are resolved.

If the normalization of diplomatic relations between the two countries is realized, Japan will likely provide financial assistance worth USD 5~10 billion to the North in the form of goods and services. No doubt, this will hugely affect the future economy of North Korea, whose economic scale is currently minimal. The Souths role in this is to make preparations in advance to see that these funds are used effectively. First, South Korea should shift its previous view on the economic cooperation with the north from focusing only on bilateral cooperation between the two Koreas to focusing on the economic recovery of the North by cooperating with Japan and international financial organizations. Second, it should ensure that Japanese financial assistance should serve to bring about systemic reforms in the North Korean economy that can lead to the improvement of its efficiency. Finally, the South should seek ways to actively participate in this process.

WTO New Round: Preparing the Negotiation on AgricultureYoo Cheul Song·Ji Hyun Park(KIEP)Jaeok Lee·Myong Keun Eor·Jeong Bin Im(KREI)

Agricultural trade is now under the WTO principles after the Uruguay Round. Each member country has changed its agricultural policy following the result of Uruguay Round. They lowered the average tariff rate on agricultural products in OECD countries to 36%, but it is much higher than the average tariff rate on all products. Developed countries use the specific tariff and mixed tariff, which make their tariff system less transparent and they use a tariff rate quota that prevents imports over a certain level. However, WTO member countries follow their schedules on domestic subsidy reduction.
The negotiations on agriculture are now underway as the built-in agenda in WTO even though the launch of New Round failed at the 3rd Ministerial Meeting. Tariff cuts, minimum market access, special safeguards, blue box, domestic and export subsidies, export credit and genetically modified organism are expected to be on the main agenda of the agricultural negotiations.

Korea has carried out its promise to the WTO after 1995 and the influence of the Uruguay Round on the agricultural sector was not critical because Korea was allowed to have flexibility on major products. However, it is expected that new negotiation on agriculture will have a huge effect on Koreas agricultural sector because it will cause tariff cuts and reduction on domestic subsidies.

Therefore, the Korean government should form a negotiation plan that helps to facilitate structural reforms in the agricultural sector. The Korean government should keep in mind the basic position of maintaining a reasonable time to prevent the collapse of the agricultural sector even though it should open the market eventually.

WTO Negotiation on Trade in Services: Its Impacts and Strategies June-Dong Kim Jang-Yung Lee Han-Young Lee Yong-Kyu Kim Jung-Hee Choe Jang Hur Jang-Won Lee

This study aims at recommending strategies for WTO services negotiation by analyzing the current status of and probable impact on some of the key service subsectors, namely financial, telecommunication, maritime and air transport as well as the movement of natural persons.

Services negotiation has the purpose of liberalizing trade in services and thus will bring economic benefits. For example, it is estimated that liberalization of financial services will increase production by US$80 billion in five years. Similarly, liberalizing telecommunication services will increase GDP by 2.4% and consumer welfare by 2.3% in the next six years.
To ensure these benefits, it is necessary to establish proper strategies for the negotiation. In the financial services, there is likely to be growing pressure to liberalize services in the mode of cross-border supply and consumption abroad as well as in the area of new financial instruments. To lessen the possible side effects of liberalization, some prudential measures on these services must be scheduled.

In the telecommunication services, there will be demands to increase foreign equity limits on facility-based service providers. In raising the limits on foreign shares, the public interest of telecommunication services should be taken into consideration. Also, some of the key regulations including those on interconnection need to be reviewed according to the WTO disciplines.

Maritime service is strategically important since future negotiation will expand opening of the foreign market. It needs to focus on countries that are less open and lack transparency in order to upgrade overall openness of this sector.
In air transport service, the issue is whether to include air traffic rights in the GATS. Since the current bilateral system reveals some inefficiencies, it is better to consider some of the air traffic rights multilaterally. Also nonscheduled and freight air transport can be included in the GATS to accommodate their needs.

The issue of movement of natural persons (mode 4) is sensitive but the Korean government needs to be positive in its negotiation. It is an important factor to encourage developing countries to participate in the services negotiation and Korea also can promote exports of her middle-skilled workers.

The government needs to recognize that liberalization of trade in services is in our interests. Hence, it can utilize the WTO services negotiation in promoting further liberalization and deregulation. However, to prepare for the possible side effects such as unemployment due to liberalization of mode 4, it needs to establish proper social safety nets and effective reeducation programs.

Early Policy of Reform and Opening in China and Vietnam and the Direction of Reform in North Korea
Myoung-Chul Cho·Ihk-Pyo Hong

From the late 1980s until the mid 1990s, North Korea experienced a great difficulty with system maintenance, with continuing food shortages, economic deterioration and international isolation in the wake of the breakdown of the socialist bloc. In light of this, there was posed the possibility of an early breakdown of the North Korean system. Kim Il-sung's death in 1994 especially raised such expectations both at home and abroad. However, the North Korean system began to show signs of gradual settlement once over the year of 1998. Based on the confidence in the stability of the system, North Korea has recently begun to pursue external opening and system reform of a North Korean style to show a rather progressive attitude in inter-Korean relations, and also to actively engage in a variety of diplomatic activities on the international scene.

In view of the stabilizing trend and developments in the North Korean system, a great number of studies on South-North Korean integration or on the transformation of the North Korean system, based on the premise of an early breakdown of North Korea and abrupt integration of two Koreas seem to be unable to reflect the various possible processes of integration and the realities of North Korea. North Korea in economic transition is especially likely to look to a reform and opening policy of partially adopting a market economic system while maintaining the socialist framework as in the case of China and Vietnam. Thus, a comparative study of the initial conditions of gradual reform and opening in China and Vietnam and the present realities in North Korea seems to be in order to provide some suggestions on the forecast and prospects for system change and reform directions in North Korea.

This report is designed to delve into the initial conditions and the foci of reform in transition to a socialist market system in China and Vietnam so as to ascertain their differences and similarities with the form, speed and reform policy North Korea can take at present in terms of economic transition. To that end, the policy and process of reform and opening are divided here into three categories: change in proprietorship, liberty of economic activities and construction of market infrastructure.

First, as for the change in proprietorship constituting the core of economic transition, China and Vietnam turned to the method of gradually expanding the non-state sector, allowing the enterprise or economic activities of individuals or foreign investors, recognizing private proprietorship, rather than hurrying to privatize national property in an across-the-board way in the initial reform process. This is in contrast with Eastern European countries, and will provide some suggestions for the North Korean process of reform.

Second, the economic liberalization policy is aimed at departing from the state-run economic plan and establishing as the economic principles the economic activities based on the free will and responsibility of the individuals. The Chinese and Vietnamese policies in this line include mainly: strengthening of independent management rights of individual production units, curtailment or abrogation of production subsidies to companies, gradual liberalization of commodity prices, partial admittance of business establishment and commercial activities, liberalization of foreign trade and expansion of foreign investment.

Third, construction of market infrastructure should go along two lines: financial and monetary. China and Vietnam, aware that these two lines are the most important in economic reform, came up with a variety of active macroeconomic policies. North Korea will also have to carry out radical reform of the financial and monetary systems and thus guarantee the free flow of capital in order for the privatization and liberalization policy to bear fruit in the market.

As mentioned above, China and Vietnam have adopted the gradual step-by-step reform and opening policy under the management of the Party and government while maintaining the basic framework of socialism. This will be a rather probable alternative for North Korea at present. In addition, a comparative study of China and Vietnam, both having experienced territorial division due to ideological differences, though different in characteristics and details from Korea, may also suggest some lessons to Korea in expanding inter-Korean economic relations and constructing a joint economic community. The difference between China and Vietnam on the one hand and North Korea on the other hand lies in that the former two do not have to worry about possible system instability during the process of marketization of the economy owing to the existence of a possible "absorber country," while the latter has to worry about the existence of such a country, which acts as a hindrance on the path of marketization and external opening. Hence comes also the importance of the roles of the South Korean government and neighboring nations in inducing the stable reform and opening policy of North Korea.

Korea-Chile FTA: Background, Economic Effects and Policy Implications Inkyo Cheong and Kyounghee Lee
Though Korea achieved economic growth under the multilateral system of the GATT/WTO, its reaction to a widening spread and deepening of regional trading blocs has been lukewarm, due to domestic opposition to market opening under regional trading agreements. However, since the financial crisis began, the Korean government has been reevaluating the potential gains to be made by removing trade barriers on a preferential basis, and has decided to pursue the establishment of preferential trading blocs.

Regionalism is one of the most dominant trends in the world economy today. In line with this increasing trend towards regional integration, Korea has altered its past position opposing regional trade blocs and is now cautiously investigating the establishment of FTAs with major trading countries. Koreas new trade policy is aimed at promptly adapting to the changing economic environment, as well as resolving the countrys economic difficulties.

Consequently, an ultimate goal of this policy is to transform Korea into an open trading country, which makes a meaningful contribution to opening up the world economy at the international level, while at the national level the government remains committed to opening its market through parallel development of democracy and a market economy.
In addition, it is recognized that the supplier-oriented trade policy of the past must be changed into a consumer-oriented policy that maximizes the convenience and benefits of the general public. In terms of cost-efficiency, the publics well-being is better served when the majority of consumers can be supplied with low-cost and high-quality goods rather than defending the interests of a minority of producers. Therefore, the government must perform the role of opening up the domestic market, so that its people can enjoy an abundance of low-cost and high-quality goods and services.

This liberalization has been viewed as beneficial by most Koreans, and there is a growing perception that the establishment of FTAs with major trading partners will bring greater welfare gains. Moreover, Korea has recognized the importance of stable export markets; it is thought that the current account deficit that preceded the financial crisis resulted in worsening international confidence in the Korean economy. Another important background factor in the current trend towards regionalism can be found in trade policy makers recognition of the necessity of upgrading Koreas economic system to meet international standards.

Korea chose Chile as its first FTA partner because of high complementarity in trade structure and learning effects from Chiles plentiful experience in regional trading agreements, while Chile chose Korea because Chile highly valued Koreas close linkage with neighboring Asian countries (Chile can take advantage of Koreas trade linkage for widening Chiles market access to other Asian countries), as well as Koreas growth potential through performing strong reforms in several sectors including financial sector.

Cheong (1999) analyzed the economic effect of the potential FTA between Chile and Korea by using a CGE model. The CGE model is a general equilibrium model that has the advantage of determining the re-allocation effects of the resources caused by the cross-sectoral reallocation of production factors, which the partial equilibrium is not able to deal with.
Korea is expected to gain more benefit from the tariff elimination between the two countries. For example, preferential tariffs imposed by Chile on Canadian and Mexican exports through the FTA between two countries are now acting as main barriers for Koreas export products such as automobiles and tire that are highly competitive with those products. In this regard, the conclusion of a Korea-Chile FTA will provide Korean products with price competitiveness, enabling them to better compete with other countries in Chilean market. This inference can be supported in the Mexicos case, which has an industrial structure similar to Korea, taking as an example of the MexicoChile FTA.

Mexican exports to Chile were jumped from 180 million dollars in 1992 to 930 million dollars in 1996. Korea is also expected to enjoy similar level of export expansion effect, if Korea establishes an FTA with Chile. According to authors calculation, the FTA seems to result in Koreas welfare improvement of 960 million dollars. This result, however, does not consider service trade effect and market expansion effect. The actual improvement is expected to be even greater if we include them.

Among Koreas export sectors, some competitive sectors with greater market share in Chile will be particularly benefited from a Korea-Chile FTA. They are automobiles (occupying 18% in Chilean import market), refrigerator (31%), microwave oven (69%), washing machine (65%), tire and automobile battery, textile, elevator and PVC.

As for Korea, among the manufacturing sectors, the copper processing industry will be mostly affected as imports of copper and related products from Chile will increase with the establishment of a Korea-Chile FTA. This is because Chilean copper is leading the first position in the world in terms of exploitable reserves, production and exports volume. The mining sector is the most important and competitive sector in Chilean economy, accounting for more than one half of global exports.

One of the main reasons why Korea selected Chile as its first FTA partner is that the negative economic effect will not be so great on Korea agricultural sector. Agricultural imports from Chile was only 26 million dollars in 1997, 6 million dollars in 1998 and 15 million dollars in 1999, accounting for only 0.09% and 0.22% of Koreas total agricultural imports, respectively.

In Korea, main agricultural imports from Chile are confined to some fruits such as fresh grape, kiwi and tomato paste. As for grapes, however, Chiles marketing season is very different from Koreas due to the reverse geographical location (South and North Hemisphere).

Korean government, in any way, should take a deliberate stance against the potential industrial damage on sensitive sectors by carefully examining economic effect of a Korea-Chile FTA. To minimize severe restructuring cost, Korea can also consider the partial exclusion of the most affected sectors from the FTA or demand the provision of transition period for the sensitive sectors.

The government officially decided to negotiate an FTA with Chile in December 1999 and currently, the two economies finished the 4th round of negotiations December 2000. The successful conclusion of the first FTA will be of special importance for Korea because other potential FTAs will heavily depend on the first model. Most likely, negotiations will last one to two years. However, talks regarding sensitive areas of trade could potentially prolong the conclusion of the negotiations. Korea's manufacturing sector favors a Korea-Chile FTA, as most of Korea's exports to Chile consist of such manufactured goods as automobiles and electronic goods, while the agricultural sector, fearing an increase of such Chilean exports as grapes and kiwi, and the fisheries industry are deeply concerned about a Korea-Chile FTA.
Beyond the sensitive nature of various trade items, there are a number of other issues of concern surrounding Korea's FTA policy. The first issue to be considered is the need for public awareness for the potential benefits of preferential FTAs. One of main obstacles to gaining consensus for pursuing FTAs is the lack of public knowledge or a negative attitude towards trade liberalization. Most people think that trade liberalization will only contribute to the growth of imports. Some fear that the complete elimination of tariffs will be applied as soon as an FTA comes into effect, thereby requiring huge adjustment costs in some sensitive sectors in the short-term.

The drawbacks of trade liberalization are usually exaggerated, while the benefits are often underestimated. Some even consider that an FTA with large economies will be a form of economic subordination. Therefore, the government should strengthen the publicity activities on the pros and cons of preferential trade liberalization.

The second issue is the harmonization of multilateralism and regionalism. As discussed earlier, Korea has been one of the most active supporters of the GATT/WTO system. Developing countries such as Korea, Taiwan, and Singapore, have benefited from the more liberalized global trading environment under the present multilateral system. The significance of free trade under the multilateral system will not be diminished, even Korea pursues the conclusion of FTAs. The government should continue to take full advantage of the WTO, with actively participating in the framework-building processes of international trade organizations, including the WTO and the OECD, to ensure that trade rules are fair and favorable to weaker countries.

This study aims at recommending strategies for WTO negotiation on GATS rules, including emergency safeguards, subsidies and government procurement. The discussion on these GATS rules has gained a momentum since February 2000 when the WTO services negotiation restarted as a built-in agenda.

Among the three items, emergency safeguards has been the most widely discussed. The key issues are the definition of domestic industry and the scope of acquired rights of foreign service suppliers. It is desirable to include foreign service suppliers as domestic industry not to interfere with the current policy of promotion of foreign investment. Yet, it can be considered not to entitle them to invoke dispute settlement procedures.

In regard to subsidies in services, the definition can draw from the Agreement on Subsidies and Countervailing Measures (ASCM) on trade in goods. The specific characteristic of services trade can be incorporated in remedies. For remedies on trade distorting subsidies, we can consider the method used in agriculture agreement, which is committed to reducing a certain amount of subsidies. Alternatively, we can use the dispute settlement procedures employed in ASCM.

The rules on government procurement is weak in the WTO system. The Government Procurement Agreement has weaknesses since it is plurilateral. Even though there is a possibility that this item will be handled in other working groups such as Working Group on Transparency in Government Procurement, it is in our interest to pursue the liberalization of government procurement in the GATS context. It is because Korea has already implemented liberalization in this area and can enjoy benefits from opening foreign markets, especially in government procurement of construction.

Among these three items, it is desirable to focus on the emergency safeguard, since it is in this item that most developing countries show interest. The government should be attentive not to obstruct the whole services negotiation due to the delay in talks on subsidies and government procurement.

Since the 1990s, the international financial environment has changed fast in terms of globalization, diversification, deregulation and innovation. The development of information and telecommunications technology has led banking institutions to shift from the traditional lending and borrowing activities to multi-financial projects and development of new financial products. Financial engineering has generated various derivatives and international financial transactions have, thereby, been diversified, with the various loosening restrictions on the financial industry.

On the 21st century, the financial industry will have achieved a unified international financial market, due to international financial liberalization and cross-border services under the WTO New Round. With more competition and removal of entry barriers in the international financial market, developed countries have promoted M&As in the financial industry and universal banking system.

After financial crisis, important steps were taken to increase foreigners' access to the banking sector in Korea such as subsidiary and ownership of banks. The benefits of liberalization in banking sector is as follows: to facilitate the exchange of goods and services; to facilitate risk management; to mobilize resources; to obtain information, evaluate firms, and allocate capital; and to provide corporate control. However, there are possible negative effects such as increase in unemployment, higher foreign capital occupancy of the local market, more influence of foreign capital on domestic market and intervention in domestic corporate. Also, freer capital flows have the effect of smoothing consumption over time, and it has to be recognized as the benefit of the liberalization.

We investigated the trend in penetration of foreign banks into the Korean market. Given the regulatory restriction, it has been confirmed that the extent of the penetration remained limited. Foreign banks in Korea have been engaged in foreign currency lending business to Korean corporations and banks, which was funded by their parent offices. Since the share of foreign bank has been too minor to bring about serious changes in charter values of Korean banks and the competitive environment of the Korean banking sector, we focused on their behavioral patterns. We found that their foreign currency lending was neither pro- nor counter-cyclical in contrast to their Korean currency lending which was pro-cyclical. Also interestingly, foreign currency lending of Korean banks turned out to be pro-cyclical.

Foreign banks in Korea were able to provide rather stable foreign currency lending service irrespective of macroeconomic fluctuation of the Korean economy. Foreign banks have more cushions to absorb cyclical shocks specific to the Korean economy than Korean banks. Hence, we argue that allowing commercial presence of foreign banks should be expected to be beneficial in this regard.

It is too early to make a comprehensive assessment of the impact of the liberalization of banking service. However, we conjecture that the ongoing restructuring and entry of foreign banks will make the domestic banks more competitive. In order to survive, management should be independent and efficient. In other words, The Korean banking services should establish the responsible management system and asset soundness. Also, financial infrastructure should be established through improvements in accounting, credit ratings and payment system. The range of banking services needs to be enlarged through development of various products and management skills, along with M&As and joint business with other banks. Consistent market liberalization will more rapidly drive financial globalization. This will lead to the advanced financial institutions as in developed countries.

Effects of NAFTA on US, Canada, and MexicoWon-Ho Kim·Moonsung Kang·Suyeob Na·Jin O Kim

The structure of the economic environment in North America has changed markedly over the last decade. Canada, which had long avoided free trade with the United States, pushed for the Canada-U.S. Free Trade Agreement (CUSFTA) which came into effect on January 1, 1989. In addition, the North American Free Trade Agreement (NAFTA) went into effect on January 1, 1994. The NAFTA has become one of the world`s best-known free trade agreements. It is also significant on the reason that for the first time ever, a dveloping country sat down with two industrialized countries and created an agreement that opens its economy to the challenges and opportunities of the North American marketplace. Seven years ago, three countries were in the midst of vigorous debate about the economic future of their own country. They debated whether they should open their economy to greater competition and secure a new set of rules to govern their trade relations with each other. The purpose of this research is to compare the real effects of the NAFTA with the economic outlook proposed before the NAFTA.

As a result of the NAFTA, trade volume in North America has incredibly increased. This feature is compatible with the main purposes of the NAFTA: (1) elimination of barriers to trade and (2) promotion of fair competition. The trade pattern in this region indicates that Canadian and Mexican trade-dependence on US is increasing in the recent years. Thus we expect that a rise or fall of US economy would directly affect Canadian and Mexican economies.