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The Automobile Industry and The Mexico-Us Free Trade Agreement

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  • Steven Berry
  • Vittorio Grilli
  • F. Lopez-de-Silanes

Abstract

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.

Suggested Citation

  • Steven Berry & Vittorio Grilli & F. Lopez-de-Silanes, 1992. "The Automobile Industry and The Mexico-Us Free Trade Agreement," NBER Working Papers 4152, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4152 Note: IO ITI
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    References listed on IDEAS

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    1. Linda Hunter & James R. Markusen & Thomas F. Rutherford, 1991. "Trade liberalization in a multinational-dominated industry: a theoretical and applied general equilibrium analysis," Proceedings, Federal Reserve Bank of Dallas, pages 39-42.
    2. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
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    Cited by:

    1. Tovar, Jorge, 2012. "Consumers’ Welfare and Trade Liberalization: Evidence from the Car Industry in Colombia," World Development, Elsevier, vol. 40(4), pages 808-820.
    2. Manez, J.A. & Waterson, M., 2001. "Multiproduct Firms and Product Differentiation: a Survey," The Warwick Economics Research Paper Series (TWERPS) 594, University of Warwick, Department of Economics.
    3. Minsoo Park & Hongjai Rhee, 2014. "Effects of FTA Provisions on the Market Structure of the Korean Automobile Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(1), pages 39-58, August.
    4. Mary E. Burfisher & Sherman Robinson & Karen Thierfelder, 2001. "The Impact of NAFTA on the United States," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 125-144, Winter.
    5. James Markusen & Thomas Rutherford, 1994. "Discrete plant-location decisions in an applied general-equilibrium model of trade liberalization," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 130(1), pages 133-151, March.
    6. Sylvie MONTOUT & Jean-Louis MUCCHIELLI & Soledad ZIGNAGO, 2002. "Regionalization And Intra-Industry Trade. An Analysis Of Automobile Industry Trade In Nafta," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 16, pages 137-159.
    7. Florencio Lopez-de-Silane & James R. Markusen & Thomas F. Rutherford, 1993. "Anti-Competitive and Rent-Shifting Aspects of Domestic-Content Provisions in Regional Trade Blocks," NBER Working Papers 4512, National Bureau of Economic Research, Inc.
    8. 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.
    9. Lionel Fontagné, 1995. "Why NAFTA Might Be Discriminatory," Working Papers 1995-12, CEPII research center.
    10. Jorge Tovar, 2004. "The Welfare Effects Of Trade Liberalization: Evidence From The Car Industry In Colombia," DOCUMENTOS CEDE 003638, UNIVERSIDAD DE LOS ANDES-CEDE.
    11. Melvyn Fuss & Steven Murphy & Leonard Waverman, 1992. "The State of the North American and Japanese Motor Vehicle Industries: A Partially Calibrated Model to Examine the Impacts of Trade Policy Changes," NBER Working Papers 4225, National Bureau of Economic Research, Inc.

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