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The Political Economy of Mexico's Entry to NAFTA

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  • Aaron Tornell
  • Gerardo Esquivel

Abstract

In this paper, we derive three lessons from Mexico's experience. First, deep reforms like trade liberalization are not likely to happen by government decree. Instead, they usually come about when the unanimous blocking of reform by powerful elites breaks down. In the case of Mexico, this happened during a fiscal crisis, when some groups tried to displace other groups in order to capture a greater share of fiscal revenue. Second, in the presence of entrenched elites, the sustainability of reform depends on the existence of new groups that benefit from the new status quo and have enough power to defend it. Thus, the speed of successful reform is determined by the speed with which new groups are consolidated. Initially, Mexico limited radical liberalization to the manufacturing sector. The government has only recently begun to undertake serious liberalization in the services and agriculture sectors. The third lesson we take from Mexico is that the importance of formal agreements like NAFTA lies not so much in the ability of these agreements to reduce average import tariffs among their parties and improve their terms of trade vis vis the rest of the world, as claimed by the optimal tariff literature, but in that they serve as commitment devices to force reforms to continue.

Suggested Citation

  • Aaron Tornell & Gerardo Esquivel, 1995. "The Political Economy of Mexico's Entry to NAFTA," NBER Working Papers 5322, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5322
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    References listed on IDEAS

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    1. S Van Wijnbergen & Anthony J. Venables, 1993. "Location Choice," CEP Discussion Papers dp0177, Centre for Economic Performance, LSE.
    2. Tybout, James R. & Westbrook, M. Daniel, 1995. "Trade liberalization and the dimensions of efficiency change in Mexican manufacturing industries," Journal of International Economics, Elsevier, vol. 39(1-2), pages 53-78, August.
    3. Aaron Tornell, 1995. "Are Economic Crises Necessary for Trade Liberalization and Fiscal Reform? The Mexican Experience," NBER Chapters,in: Reform, Recovery, and Growth: Latin America and the Middle East, pages 53-76 National Bureau of Economic Research, Inc.
    4. Sachs, Jeffrey & Tornell, Aaron & Velasco, Andres, 1995. "The Collapse of the Mexican Peso: What Have We Learned?," Working Papers 95-22, C.V. Starr Center for Applied Economics, New York University.
    5. Arturo Fernandez, 1995. "Deregulation as a Source of Growth in Mexico," NBER Chapters,in: Reform, Recovery, and Growth: Latin America and the Middle East, pages 311-342 National Bureau of Economic Research, Inc.
    6. 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.
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    Citations

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    Cited by:

    1. 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.
    2. Gerardo Esquivel, 2011. "The Dynamics of Income Inequality in Mexico since NAFTA," ECONOMIA JOURNAL, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA, vol. 0(Fall 2011), pages 155-188, August.
    3. Florencia Torche & Luis F. Lopez-Calva, 2013. "Stability and Vulnerability of the Latin American Middle Class," Oxford Development Studies, Taylor & Francis Journals, vol. 41(4), pages 409-435, December.
    4. Antonis Adam & Thomas Moutos, 2002. "The Political Economy of EU Enlargement: Or, Why Japan is not a Candidate Country?," CESifo Working Paper Series 704, CESifo Group Munich.
    5. Aaron Tornell & Frank Westermann & Lorenza Martinez, 2004. "NAFTA and Mexico's Less-Than-Stellar Performance," NBER Working Papers 10289, National Bureau of Economic Research, Inc.
    6. Iacovone, Leonardo, 2012. "The better you are the stronger it makes you: Evidence on the asymmetric impact of liberalization," Journal of Development Economics, Elsevier, vol. 99(2), pages 474-485.
    7. Andreas Waldkirch, 2010. "The Effects of Foreign Direct Investment in Mexico since NAFTA," The World Economy, Wiley Blackwell, vol. 33(5), pages 710-745, May.
    8. Édgard Moncayo Jiménez, 2006. "Relaciones entre democracia y desarrollo en los países andinos. Una reflexión desde la economía política," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 8(14), pages 167-190, January-J.
    9. Waldkirch, Andreas, 2006. "The ‘New Regionalism’: Integration as a Commitment Device for Developing Countries," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 21, pages 397-425.
    10. Gerardo Esquivel & Graciela Márquez, 2007. "Some Economic Effects of Closing the Economy: The Mexican Experience in the Mid-Twentieth Century," NBER Chapters,in: The Decline of Latin American Economies: Growth, Institutions, and Crises, pages 333-362 National Bureau of Economic Research, Inc.
    11. 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.
    12. Aaron Tornell, 1998. "Reform from Within," Harvard Institute of Economic Research Working Papers 1827, Harvard - Institute of Economic Research.
    13. Aghion, Edouard, 2011. "NAFTA and its Impact on Mexico," MPRA Paper 36529, University Library of Munich, Germany.
    14. 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.
    15. Atolia, Manoj & Kurokawa, Yoshinori, 2016. "The impact of trade margins on the skill premium: Evidence from Mexico," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 895-915.
    16. repec:unu:wpaper:wp2012-98 is not listed on IDEAS
    17. Octavio Escobar, 2011. "The location pattern of FDI in Mexico after NAFTA," ERSA conference papers ersa10p804, European Regional Science Association.
    18. Aaron Tornell & Frank Westermann & Lorenza Martínez, 2004. "NAFTA and Mexico's Economic Performance," CESifo Working Paper Series 1155, CESifo Group Munich.
    19. Aaron Tornell, 2003. "Liberalization, Growth and Financial Crises (October 2003)," UCLA Economics Online Papers 276, UCLA Department of Economics.

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