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NAFTA and the diversification of Mexico’s exports

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Abstract

Using NAFTA’s effect on Mexico’s exports as a natural experiment, this paper conducts an empirical analysis on the explanatory power of the two strands of heterogeneous firms trade models: the heterogeneous firms trade (HFT) model and the quality heterogeneous firms trade (QHFT) model. The paper first discusses the common prediction of the two models on ‘new’ goods’ exports and on the contrasting prediction on unit price evolution. An empirical analysis shows a strong supportive evidence on the common prediction, i.e., NAFTA’s positive impact on ‘new’ goods exports from Mexico to the US. The paper then proposes a simple way to check the explanatory power of the models on unit price evolution, and finds no evidence in favour of either model.

Suggested Citation

  • Tadashi Ito, 2008. "NAFTA and the diversification of Mexico’s exports," IHEID Working Papers 06-2008, Economics Section, The Graduate Institute of International Studies, revised 09 Jun 2009.
  • Handle: RePEc:gii:giihei:heidwp06-2008
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    File URL: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIDWP06-2008.pdf
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    References listed on IDEAS

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    1. Rüffer, Rasmus & Stracca, Livio, 2006. "What is global excess liquidity, and does it matter?," Working Paper Series 696, European Central Bank.
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    Keywords

    NAFTA; Extensive margins;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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