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NAFTA and Mexico's Economic Performance

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  • Aaron Tornell
  • Frank Westermann
  • Lorenza Martínez

Abstract

Mexico, a prominent liberalizer, failed to attain stellar gross domestic product (GDP) growth in the 1990s, and since 2001 its GDP and exports have stagnated. In this paper we argue that the lack of spectacular growth in Mexico cannot be blamed on either the North American Free Trade Agreement (NAFTA) or the other reforms that were implemented, but on the lack of further judicial and structural reform after 1995. In fact, the benefits of liberalization can be seen in the extraordinary growth of exports and foreign domestic investment (FDI). The key to the Mexican puzzle lies in Mexico’s response to crisis: a deterioration in contract enforceability and an increase in nonperforming loans. As a result, the credit crunch in Mexico has been far deeper and far more protracted than in the typical developing country. The credit crunch has hit the nontradables sector especially hard and has generated bottlenecks, which have blocked growth in the tradables sector and have contributed to the recent fall in exports.

Suggested Citation

  • Aaron Tornell & Frank Westermann & Lorenza Martínez, 2004. "NAFTA and Mexico's Economic Performance," CESifo Working Paper Series 1155, CESifo.
    • Handle: RePEc:ces:ceswps:_1155
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    References listed on IDEAS

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    Cited by:

    1. Aghion, Edouard, 2011. "NAFTA and its Impact on Mexico," MPRA Paper 36529, University Library of Munich, Germany.
    2. Javier Santiso, 2007. "Latin America's Political Economy of the Possible: Beyond Good Revolutionaries and Free-Marketeers," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262693593, April.
    3. Pablo Mejía-Reyes & Reyna Vergara-González, 2017. "Are More Severe Recessions Followed by Stronger Early Expansions of Employment in the Mexican States?," The Review of Regional Studies, Southern Regional Science Association, vol. 47(3), pages 243-269, Fall.
    4. Stephanou, Constantinos & Munoz, Emanuel Salinas, 2007. "Financing of the private sector in Mexico, 2000-05 : evolution, composition, and determinants," Policy Research Working Paper Series 4264, The World Bank.
    5. Pablo Mejía-Reyes & Reyna Vergara-González, 2015. "Are more severe recessions followed by stronger recoveries? Evidence from the Mexican states employment," ERSA conference papers ersa15p1223, European Regional Science Association.

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    Keywords

    boom-bust cycles; currency mismatch; lending booms; real exchange rate; FDI; credit market imperfections and volatility;
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