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NAFTA and Convergence in North America: High Expectations, Big Events, Little Time


  • William Easterly


  • Norbert Fiess


  • Daniel Lederman



"The rest of the paper is organized as follows. The next section uses times series techniques to identify the impact of NAFTA on the income gap between Mexico and the United States. To deal with the big-events little- time problem, we apply two time series methods. First, we follow Harvey in conducting a structural time series exercise that might be able to separate transitory effects (such as the tequila crisis) from the long-term effects expected from NAFTA.19 Second, following Bernard and Durlauf, we apply cointegration analysis to see whether there is an observable process of income convergence between the United States and Mexico.20 We do this recursively to test for any structural change in the equilibrium condition between U.S. and Mexican GDP using quarterly data from 1960 to 2001. We find that the debt crisis in the early 1980s and the tequila crisis temporarily interrupted a process of economic convergence, which resumed after 1995. Convergence after Mexico´s trade liberalization in the late 1980s and after NAFTA might have been faster prior to the debt crisis. However, given that other Latin American economies also grew quickly during this period, we also provide econometric annual estimates of the differences between Mexico-specific and Latin American income effects. These results indicate that Mexico´s performance between 1986 and 1993 was not that different from the average Latin American economy, but it was significantly more positive after NAFTA, with the obvious exception of 1995."

Suggested Citation

  • William Easterly & Norbert Fiess & Daniel Lederman, 2003. "NAFTA and Convergence in North America: High Expectations, Big Events, Little Time," ECONOMIA JOURNAL, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA, vol. 0(Fall 2003), pages 1-53, August.
  • Handle: RePEc:col:000425:008680

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    Cited by:

    1. Edgardo A. Ayala Gaytán & Joana C. Chapa Cantú & Juan D. Murguía Hernández, 2011. "Una reconsideración sobre la convergencia regional en México," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 26(2), pages 217-247.
    2. Miguel Fuentes & Pablo Ibarrarán, 2012. "Firm dynamics and real exchange rate fluctuations: Does trade openness matter? Evidence from Mexico's manufacturing sector," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 21(3), pages 409-469, May.
    3. 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.
    4. Ayhan Kose & Christopher M Towe & Guy M Meredith, 2004. "How Has Nafta Affected the Mexican Economy? Review and Evidence," IMF Working Papers 04/59, International Monetary Fund.
    5. Alicia Puyana & José Romero, 2005. "Reforma estructural, contención de los salarios y ganancias del capital: la experiencia mexicana," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 7(12), pages 63-95, January-J.
    6. Julio Huato, 2005. "Maquiladoras and Standard of Living in Mexico Before and After NAFTA," Development and Comp Systems 0508006, EconWPA.
    7. Alicia Puyana & José Romero, 2004. "Apertura comercial y remuneraciones a los factores: La experiencia mexicana," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 19(2), pages 285-325.
    8. De Hoyos, Rafael E. & Iacovone, Leonardo, 2013. "Economic Performance under NAFTA: A Firm-Level Analysis of the Trade-productivity Linkages," World Development, Elsevier, vol. 44(C), pages 180-193.
    9. Aggarwal, Raj & Kyaw, NyoNyo A., 2005. "Equity market integration in the NAFTA region: Evidence from unit root and cointegration tests," International Review of Financial Analysis, Elsevier, vol. 14(4), pages 393-406.

    More about this item


    NAFTA; convergence hypothesis; time series analysis; trade liberalization; Mexico; United States;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F10 - International Economics - - Trade - - - General
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting


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