Firm dynamics and real exchange rate fluctuations: Does trade openness matter? Evidence from Mexico's manufacturing sector
AbstractIn this article, we study the effect of North American Free Trade Agreement (NAFTA) on the responsiveness of Mexican economy to real exchange rate shocks. We argue that, by opening the US and Canadian markets to Mexican goods, NAFTA made it easier for domestic producers to take advantage of the opportunities brought by the depreciation of the real exchange rate. To identify this mechanism, we use plant-level data and compare the behavior of employment, production and investment after two big real exchange rate shocks: the first observed in the mid-1980s, the second the Tequila Crisis of 1994--1995. The evidence indicates that after passage of NAFTA exporting firms exhibited higher growth rates of employment, sales and investment vis-�-vis non-exporters. We confirm our results by analyzing the behavior of a control group of firms, that had complete access to the US market during both devaluations, and we show that they responded in a similar way in both events. Finally, we also provide direct evidence on the relationship between exports and tariff reductions brought by NAFTA. Our results support the view that NAFTA has allowed Mexican producers to respond more quickly to real exchange shocks.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.
Volume (Year): 21 (2012)
Issue (Month): 3 (May)
Contact details of provider:
Web page: http://www.tandfonline.com/RJTE20
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.