The Impact of Nafta on Mexicos Trade and Growth an...

Introduction It is known that Mexican trade has expanded significantly since 1983 to date. What has been the contribution of the North American Trade Agreement (NAFTA) to the expansion of Mexican trade? Has the expansion of Mexican trade contributed to the growth of the Mexican Economy? This paper investigates the historical relationship between trade and growth in Mexico, from 1970 to 1998. More specifically, it measures the importance of NAFTA on the opening of the Mexican economy. The above period includes two different stages of the Mexican economy. The first one, from 1970 to 1982, is a baseline for this research and represents the last phase of the industrial-import substation economy, characterized by widespread government†¦show more content†¦Mexico unilateral changes and NAFTA can be considered complementary explanatory factors. In this model, unilateral changes and NAFTA are treated as exogenous factors. A dummy variable with value one since 1986 to 1998 represent unilateral trade liberalization and a dummy variable with value one since 1994 to 1999 represents NAFTA contribution to liberalization. By these means, the impact of these two changes is compared against the base line of the previous stage (1970-82). Finally, the effect of exchange rate policies is controlled with the variable devaluation of the Mexican peso1. Two alternative measures of devaluation are used, the rate of change of the nominal exchange rate, and a dummy variable with value 1 for years when the rate of change was larger than 50%. Another alternative, not explored here, is to use the real exchange rate. benito@sonoma.edu, http://www.sonoma.edu/people/benito 1 In other studies about growth and trade, authors have used the real exchange rate as explanatory variable. Real exchange rates, however, are not policy variables directly controlled by policy makers. They are indirectly determined. Say, in an Australian type of model the real exchange rate is defined as RER = E. p t/Pn Where RER is the real exchange rate, E is the nominal exchange rate, pt is the world price of tradable goods, and Pn is the domestic price of non-tradable