This paper considers the likely effect on the automobile industry of a free trade agreement between the U.S. and Mexico. As there are currently large restrictions on imports into Mexico, one important outcome of a free trade agreement would be the opening of the Mexican market to U.S. producers. This is consistent with the history of the international auto industry and the fact that the U.S.-Canada Auto Pact opened a new, large market to U.S. manufacturers. The current state of the Mexican auto industry is considered in great detail, suggesting that the Mexican industry will continue to prosper, increasing output but also relying heavily on production from U.S. owned plants and on inputs imported from the U.S. and Canada. However, much of the existing domestically oriented industry is likely to be replaced by other North American producers. Finally, an econometric demand analysis implies that economic growth together with declines in prices to world levels could rapidly expand the size of the Mexican auto market. The free trade agreement represents an opportunity for product diversification and rationalization in the auto industry.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
4152.
Length: Date of creation: Aug 1992 Date of revision: Handle: RePEc:nbr:nberwo:4152
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Aaron Tornell & Gerardo Esquivel Hernández, 1997.
"The Political Economy of Mexico's Entry into NAFTA,"
NBER Chapters,
in: Regionalism versus Multilateral Trade Arrangements, NBER-EASE Volume 6, pages 25-56
National Bureau of Economic Research, Inc.
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