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The Political Economy of Mexico's Entry into NAFTA

In: Regionalism versus Multilateral Trade Arrangements, NBER-EASE Volume 6

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  • Aaron Tornell
  • Gerardo Esquivel Hernández

Abstract

In this paper, we derive three lessons from Mexico's experience. First, deep reforms like trade liberalization are not likely to happen by government decree. Instead, they usually come about when the unanimous blocking of reform by powerful elites breaks down. In the case of Mexico, this happened during a fiscal crisis, when some groups tried to displace other groups in order to capture a greater share of fiscal revenue. Second, in the presence of entrenched elites, the sustainability of reform depends on the existence of new groups that benefit from the new status quo and have enough power to defend it. Thus, the speed of successful reform is determined by the speed with which new groups are consolidated. Initially, Mexico limited radical liberalization to the manufacturing sector. The government has only recently begun to undertake serious liberalization in the services and agriculture sectors. The third lesson we take from Mexico is that the importance of formal agreements like NAFTA lies not so much in the ability of these agreements to reduce average import tariffs among their parties and improve their terms of trade vis vis the rest of the world, as claimed by the optimal tariff literature, but in that they serve as commitment devices to force reforms to continue.

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This chapter was published in:

  • Takatoshi Ito & Anne O. Krueger, 1997. "Regionalism versus Multilateral Trade Arrangements, NBER-EASE Volume 6," NBER Books, National Bureau of Economic Research, Inc, number ito_97-1, May.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 8595.

    Handle: RePEc:nbr:nberch:8595

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    References

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    1. S. Van Wijnbergen & Tony Venables, 1993. "Location choice," LSE Research Online Documents on Economics 2099, London School of Economics and Political Science, LSE Library.
    2. Jeffrey Sachs & Aaron Tornell & Andres Velasco, 1995. "The Collapse of the Mexican Peso: What Have We Learned?," Harvard Institute of Economic Research Working Papers 1724, Harvard - Institute of Economic Research.
    3. Steven Berry & Vittorio Grilli & F. Lopez-de-Silanes, 1992. "The Automobile Industry and The Mexico-Us Free Trade Agreement," NBER Working Papers 4152, National Bureau of Economic Research, Inc.
    4. Aaron Tornell, 1995. "Are Economic Crises Necessary for Trade Liberalization and Fiscal Reform? The Mexican Experience," NBER Chapters, in: Reform, Recovery, and Growth: Latin America and the Middle East, pages 53-76 National Bureau of Economic Research, Inc.
    5. Arturo Fernandez, 1995. "Deregulation as a Source of Growth in Mexico," NBER Chapters, in: Reform, Recovery, and Growth: Latin America and the Middle East, pages 311-342 National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:
    1. Andreas Waldkirch, 2004. "The 'New Regionalism': Integration as a Commitment Device for Developing Countries," International Trade 0412004, EconWPA.
    2. Aaron Tornell & Frank Westermann & Lorenzo Martinez, 2004. "Nafta and Mexico Less-than-Steller Performance," UCLA Economics Working Papers 833, UCLA Department of Economics.
    3. Aaron Tornell, 1998. "Reform from Within," NBER Working Papers 6497, National Bureau of Economic Research, Inc.
    4. Gerardo Esquivel, 2010. "The dynamics of income inequality in Mexico since NAFTA," Serie documentos de trabajo del Centro de Estudios Económicos 2010-09, El Colegio de México, Centro de Estudios Económicos.
    5. Aaron Tornell & Frank Westermann & Lorenza Martínez, 2004. "NAFTA and Mexico's Economic Performance," CESifo Working Paper Series 1155, CESifo Group Munich.
    6. Octavio Escobar, 2011. "The location pattern of FDI in Mexico after NAFTA," ERSA conference papers ersa10p804, European Regional Science Association.
    7. Antonis Adam & Thomas Moutos, 2002. "The Political Economy of EU Enlargement: Or, Why Japan is not a Candidate Country?," CESifo Working Paper Series 704, CESifo Group Munich.
    8. Esquivel, Gerardo & Rodriguez-Lopez, Jose Antonio, 2003. "Technology, trade, and wage inequality in Mexico before and after NAFTA," Journal of Development Economics, Elsevier, vol. 72(2), pages 543-565, December.
    9. Aaron Tornell, 2003. "Liberalization, Growth and Financial Crises (October 2003)," UCLA Economics Online Papers 276, UCLA Department of Economics.
    10. Édgard Moncayo Jiménez, 2006. "Relaciones entre democracia y desarrollo en los países andinos. Una reflexión desde la economía política," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 8(14), pages 167-190, January-J.
    11. Iacovone, Leonardo, 2009. "The better you are the stronger it makes you : evidence on the asymmetric impact of liberalization," Policy Research Working Paper Series 4930, The World Bank.
    12. Andreas Waldkirch, 2010. "The Effects of Foreign Direct Investment in Mexico since NAFTA," The World Economy, Wiley Blackwell, vol. 33(5), pages 710-745, 05.
    13. Gerardo Esquivel & Graciela Márquez, 2007. "Some Economic Effects of Closing the Economy: The Mexican Experience in the Mid-Twentieth Century," NBER Chapters, in: The Decline of Latin American Economies: Growth, Institutions, and Crises, pages 333-362 National Bureau of Economic Research, Inc.
    14. Aghion, Edouard, 2011. "NAFTA and its Impact on Mexico," MPRA Paper 36529, University Library of Munich, Germany.
    15. Torche, Florencia & Lopez-Calva, Luis F., 2012. "Stability and Vulnerability of the Latin American Middle Class," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
    16. Escobar Gamboa, Octavio Romano, 2009. "IDE entrants, exportations et productivité manufacturière : les différentes performances des régions mexicaines," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/3850 edited by Guillochon, Bernard.
    17. M. Ayhan Kose & Christopher M. Towe & Guy Meredith, 2004. "How Has Nafta Affected the Mexican Economy? Review and Evidence," IMF Working Papers 04/59, International Monetary Fund.

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