The Political Economy of Mexico's Entry to NAFTA
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.
|Date of creation:||Oct 1995|
|Date of revision:|
|Publication status:||published as The Political Economy of Mexico's Entry into NAFTA , Aaron Tornell, Gerardo Esquivel Hernández. in Regionalism versus Multilateral Trade Arrangements, NBER-EASE Volume 6 , Ito and Krueger. 1997|
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- 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.
- S. Van Wijnbergen & Tony Venables, 1993.
LSE Research Online Documents on Economics
2099, London School of Economics and Political Science, LSE Library.
- Sachs, Jeffrey & Tornell, Aaron & Velasco, Andres, 1995.
"The Collapse of the Mexican Peso: What Have We Learned?,"
95-22, C.V. Starr Center for Applied Economics, New York University.
- Jeffrey Sachs & Aaron Tornell & Andres Velasco, 1995. "The Collapse of the Mexican Peso: What Have We Learned?," Harvard Institute of Economic Research Working Papers 1724, Harvard - Institute of Economic Research.
- Jeffrey Sachs & Aaron Tornell & Andres Velasco, 1995. "The Collapse of the Mexican Peso: What Have We Learned?," NBER Working Papers 5142, National Bureau of Economic Research, Inc.
- 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.
- 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.
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