How has NAFTA affected the Mexican economy?

• Pages: 170-171

Page 170

IMF SURVEY: What were Mexico's key objectives entering into NAFTA?

TOWE: Mexico wanted to accelerate economic growth by promoting trade and financial flows with its NAFTA partners, but, as we discuss in the paper, other considerations were also in play. Some observers have argued, for example, that Mexico was also keen to use the agreement to help secure the permanence and credibility of its economic reform program, thereby improving its risk profile and boosting foreign investment inflows.

IMF SURVEY: Have these objectives largely been met?

TOWE: This question is a little bit tricky to answer. As our paper emphasizes, isolating the effects of NAFTA on Mexico is difficult given the significant other shocks that occurred during this period. For example, Mexico suffered a severe financial crisis in 1994, and it is difficult to gauge how much of Mexico's recovery can be attributed to cyclical causes rather than to NAFTA. Similarly, the global cyclical boom during the latter half of the 1990s and the more recent slump have also played an important role in driving growth and business cycles in emerging markets like Mexico. Nonetheless, our paper tries to disentangle some of these effects and concludes that NAFTA did help spur a dramatic increase in trade and financial flows between Mexico and its NAFTA partners, as well as economic growth in Mexico.

IMF SURVEY: How has the agreement affected trade flows between Mexico and its NAFTA partners?

KOSE: If you simply look at the statistics, there has been a significant change in trade flows since the inception of NAFTA. For example, Mexico's exports to the United States and Canada more than doubled in dollar terms between 1993 and 2002 as Mexico's trade (the sum of exports and imports) with NAFTA partners rose from 25 percent of its GDP in 1993 to 51 percent in 2000. The question, then, is whether this remarkable increase has been driven by NAFTA. Using various econometric methods, several recent studies have analyzed the impact of NAFTA on the growth of trade flows in the region. Some of these studies have used aggregate data, while others have employed sectoral series. In the paper, we provide a brief survey of these studies. I think it is fair to say that most of these studies have found that the agreement has had a positive impact on the growth of trade flows.

IMF SURVEY: Has the nature of trade changed since NAFTA?

KOSE: Yes, trade within the region has changed markedly since NAFTA...