School of Economics

2004 Discussion Papers

School of Economics Discussion Paper 04/03
March 2004

Trade Liberalisation in Mexico: Rhetoric and Reality
Penélope Pacheco-López and A.P. Thirlwall

(Published in Banca Nazionale del Lavoro Quarterly Review, 229, June: 141-167)

School of Economics
University of Kent at Canterbury

Abstract

This paper examines the process of trade liberalisation in Mexico, particularly since the mid-1980s and the signing of the NAFTA agreement, and its impact on economic performance. The average growth of GDP of the Mexican economy since liberalisation has been only one-half the rate pre-liberalisation and we attribute this deteriorating performance to a rise in the income elasticity of demand for imports (partly associated with an increase in foreign direct investment with a high import content) which has not been compensated by a sufficiently fast growth of exports, leading to severe balance of payments difficulties. Mexican exchange rate policy has not helped the situation.

JEL Classification: C22, F13, F14, F32, F43

Keywords: Trade liberalisation; Economic growth; Balance of payments; Foreign direct investment; Mexico; NAFTA

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