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Nafta and Mexico Less-than-Steller Performance

Author

Listed:
  • Aaron Tornell

    (UCLA and NBER)

  • Frank Westermann

    ((CESifo (Univ. of Munich ifo)))

  • Lorenzo Martinez

    (Banco de Mexico)

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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Aaron Tornell & Frank Westermann & Lorenzo Martinez, 2004. "Nafta and Mexico Less-than-Steller Performance," UCLA Economics Working Papers 833, UCLA Department of Economics.
  • Handle: RePEc:cla:uclawp:833
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    File URL: http://www.econ.ucla.edu/workingpapers/wp833.pdf
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    References listed on IDEAS

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    1. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2003. "Export versus FDI," NBER Working Papers 9439, National Bureau of Economic Research, Inc.
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    7. Aaron Tornell & Frank Westermann & Lorenza Martinez, 2003. "Liberalization, Growth, and Financial Crises: Lessons from Mexico and the Developing World," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2), pages 1-112.
    8. Gelos, R. Gaston & Werner, Alejandro M., 2002. "Financial liberalization, credit constraints, and collateral: investment in the Mexican manufacturing sector," Journal of Development Economics, Elsevier, vol. 67(1), pages 1-27, February.
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    Citations

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    Cited by:

    1. von Furstenberg, George M., 2006. "Mexico versus Canada: Stability benefits from making common currency with USD?," The North American Journal of Economics and Finance, Elsevier, vol. 17(1), pages 65-78, March.
    2. Pratap, Sangeeta & Urrutia, Carlos, 2004. "Firm dynamics, investment and debt portfolio: balance sheet effects of the Mexican crisis of 1994," Journal of Development Economics, Elsevier, vol. 75(2), pages 535-563, December.
    3. 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.
    4. Robertson, Raymond, 2004. "Defining North American Economic Integration," 2004 NAAMIC Workshop I: North American Agrifood Market Integration: Current Situtation and Perspectives 163856, North American Agrifood Market Integration Consortium (NAAMIC).
    5. Meza, Felipe & Urrutia, Carlos, 2011. "Financial liberalization, structural change, and real exchange rate appreciations," Journal of International Economics, Elsevier, vol. 85(2), pages 317-328.
    6. repec:ucm:wpaper:02-04 is not listed on IDEAS
    7. Gordon H. Hanson, 2010. "Why Isn't Mexico Rich?," Journal of Economic Literature, American Economic Association, vol. 48(4), pages 987-1004, December.
    8. Robertson, Raymond, 2004. "Defining North American Economic Integration," North American Agrifood Integration: Situation and Perspectives, May 2004, Cancun, Mexico 16732, Farm Foundation.
    9. Ibarra, Carlos Alberto, 2008. "Mexico's slow growth paradox," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    10. repec:dau:papers:123456789/10605 is not listed on IDEAS
    11. 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, April.
    12. Patrick Artus, 2006. "Intégration commerciale avec des pays émergents ayant des ressources importantes en main-d'œuvre qualifiée. Quels effets pour les pays européens ?," Revue économique, Presses de Sciences-Po, vol. 57(4), pages 673-704.
    13. Carranza, Luis & Galdon-Sanchez, Jose E. & Gomez-Biscarri, Javier, 2011. "The relationship between investment and large exchange rate depreciations in dollarized economies," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1265-1279.
    14. Filho, Irineu de Carvalho & Chamon, Marcos, 2012. "The myth of post-reform income stagnation: Evidence from Brazil and Mexico," Journal of Development Economics, Elsevier, vol. 97(2), pages 368-386.
    15. Octavio Escobar, 2011. "The location pattern of FDI in Mexico after NAFTA," ERSA conference papers ersa10p804, European Regional Science Association.
    16. Tugores, Juan, 2008. "Regional integration and public policy. Evaluation of the European experience and possible implications for Latin American integration," Estudios y Perspectivas – Sede Subregional de la CEPAL en México 65, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    17. Christian Freres & Andrew Mold, 2004. "European Union Trade Policy and the Poor. Towards Improving the Poverty Impact of the GSP in Latin America," Working Papers del Instituto Complutense de Estudios Internacionales 0402, Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales.
    18. 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.
    19. Kaplan, David S. & Gonzalez, Gabriel Martinez & Robertson, Raymond, 2007. "Mexican employment dynamics : evidence from matched firm-worker data," Policy Research Working Paper Series 4433, The World Bank.

    More about this item

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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