The Impact of Nafta on Mexico's Trade and Growth: an Econometric Exploration

Introduction It is known that Mexican trade has expanded significantly since 1983 to date. What has been the contribution of the North American Trade Agreement (NAFTA) to the expansion of Mexican trade? Has the expansion of Mexican trade contributed to the growth of the Mexican Economy? This paper investigates the historical relationship between trade and growth in Mexico, from 1970 to 1998. More specifically, it measures the importance of NAFTA on the opening of the Mexican economy. The above period includes two different stages of the Mexican economy. The first one, from 1970 to 1982, is a baseline for this research and represents the last phase of the industrial-import substation economy, characterized by widespread government interventions in the economy and by the OPEC bonanza. The second stage begins after the debt crisis of 1982 and runs up to the present. It is characterized by economic reforms such as privatization and liberalization of international trade. These economic reforms were later followed by democratization processes such as peasant revolts in Chiapas, and by urban political actions to establish a multiple party system. There exists a large empirical and theoretical literature on the impact of trade on growth during the 1970s and 1980s. Its findings show a positive correlation between free trade and growth (Edwards 1992; Barro and Sala-I-Martin 1995; and Sachs and Warner 1995). There exists also a literature that explains the channels through which free trade leads to foster growth (Grossman and Helpman 1989; Romer 1990; Vamvakidis 1998; and Manuel R. Agosin 1998.) There is also an emerging literature that represents in a more
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explicit way the effect of institutional change on economic development (Campos and Nugent 1998). For the case of Mexico, Lustig 's work (1998) is a major source for explaining the impact of structural adjustments on Mexican growth. It also advances explanations for the lower pace in most recent years. This paper

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